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Yes, Your Honour: Behind the Scenes of a CBRE-led Receivership Sale
July 11, 2023 4 Minute Read
Not every business venture is successful and a court can in some cases mandate that the properties be sold to pay back lenders in what’s known as a receivership sale.
CBRE just sold the final asset in a portfolio of nine Ontario medical office buildings totalling 380,869 sq. ft., on behalf of receiver KPMG Inc.
The receivership sale – a two-year process that involved 10 parcels over 20 acres in secondary and tertiary markets across the province – was executed by CBRE’s specialized listing team of Michael Bellissimo, Jordan Lunan, Tim Pacaud, Mike Czestochowski and Lauren White.
The team spoke to Advantage Insights to offer a window into the machinations and maneuvering that goes on behind the scenes during a receivership sale.
“This was one of the first receiverships of scale that was launched post-COVID,” says Lunan, noting that they were dealing with challenged medical office assets in smaller Ontario cities like Sudbury, Peterborough and Orillia, with vacancy in excess of 20% for most of the assets.
“There were a bunch of factors working against us right off the bat, but that’s when some of the best work is done.”
A medical office property in St. Catharines, Ontario
Two-pronged approach
Upon winning the RFP bid in late 2021, CBRE’s team devised a strategy to create a competitive environment and draw enough interest to the medical properties to trigger multiple offers.
“We implemented a two-pronged approach,” Lunan says. “Launching these sites as a full portfolio to a national investor database, to see if we could get interest in purchasing the entire portfolio as a package.”
After a few weeks they launched local campaigns, posting individual properties on MLS in the smaller markets.
“Courting big investors and local users at the same time opened up the purchase opportunity to a wider audience as these buyer profiles have materially different approaches to acquisitions,” says Lunan.
“The big investors are more likely to buy the whole portfolio at a discount whereas local user groups know the assets first-hand, understand their value and are more inclined to pay more for individual properties.”
‘Blood in the Water’
Because it was a receivership sale, the CBRE team knew there would be buyers who would take a “predatory” approach and attempt lowball offers, Lunan says. “So we created a strategy to guard our client against that.”
The initial feedback from the investment market was encouraging, with plenty of inquiries and questions. But it wasn’t until the local market phase of the marketing program that things really picked up steam.
“The specialized medical office nature of these properties created an environment where a lot of private investors began showing sincere interest,” says Lunan. “Especially local doctors and practitioners looking to buy these individual properties as investments.”
The marketing effort was complicated by the Omicron wave of the pandemic, which delayed tours and the initial bid date. But ultimately CBRE received 37 offers for the properties, six of them for the entire portfolio.
Not the Easy Route
After analyzing offers, the CBRE team determined that it made sense to sell some of the properties off in clusters, based on geographic proximity, which they did with a pair of sites in Sudbury.
“That helped stabilize the balance of the portfolio and allowed us to move forward selling the other properties individually with a target of maximizing proceeds” says Bellissimo.
“We didn’t take the easy route out and sell all of these properties together as a discounted portfolio,” he stresses. “It meant more work for us, but it was a better move for the client to sell most of these properties on an individual basis.”
The entire process took two years from start to finish, and while it was tricky to get deals done at certain moments, Bellissimo says all parties seem happy with how things turned out.
“We were able to demonstrate maximum exposure for all assets, which was supported by court approval for the sales.”
Killer Combo
The CBRE team for this project has come away feeling gratified that the successful sale was a testament to what can be achieved when its specialized teams join forces to maximize value in a specialized sale assignment.
Bellissimo brought his Special Property Group knowledge and underwriting expertise to the table, combining it with Lunan’s investment prowess and Czestochowski’s seasoned ability to broadly market a variety of different asset classes.
“We’re a killer combo for specialized assignments requiring a wide knowledge base across markets” Bellissimo says. “Just because a transaction is court ordered doesn’t mean we put any less effort into our market-driven process.”
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