Today’s Art of the Deal

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When I started my career in commercial real estate some six years ago, the mechanics of a transaction were pretty simple. On the one end you had the owner / seller and on the other end you had the buyer. Strike a price and make a deal. An idiot could do it (and there were many idiots who were doing it, but that’s a different story).

Today though, there is a tremendous amount of distress in the market and transactions are a bit more complicated. The distress has brought a lot more players to the table and has popularized a few non-traditional routes to acquiring real estate. I thought it would be interesting to outline these new players and acquisition methods. For the sake of brevity, I’m going to simplify (dumb-down) this as much as possible; you could write encyclopedic type volumes on this if you were inclined.*

* Please note that I’m a commercial real estate professional in Arizona, so the terminology, players and transactional mechanics I mention are very Arizona-centric.


  • Traditional Bank / Lender
  • Special Servicer: More or less, the special servicer becomes the decision maker on a distressed / defaulted real estate loan that was originated and ultimately pooled into a Commercial Mortgage-Backed Security (CMBS).
  • Court Appointed Receiver: A receiver is appointed by a court to manage the day-to-day operations of a property when a borrower defaults on their loan. The receiver even has the authority to sell the property, although this would only happen if the bank or special servicer desires the sale and a court / judge consents.
  • Court / Judge
  • Trustee: Assists, on behalf of the beneficiary, in a non-judicial foreclosure known as a trustee sale.
  • Sheriff: Assists, on behalf of the lender / special servicer, in a judicial foreclosure known as a sheriff’s sale.


SHORT SALE: A sale of real estate where the proceeds are less than the current loan on the property. On a bank loan (non CMBS), the lender would need to approve the short sale. On a CMBS loan, the special servicer would need to approve the short sale. If a receiver is appointed, whether a bank or CMBS loan, they would need to approve, as well as the court. If there is no receiver in place, the current owner / borrower would need to approve. Here is a quick breakdown of the players involved in the various short sale scenarios. I indicate whether their approval is needed with a simple Yes or No

  1. Bank Loan Short Sale: Borrower (Yes) – Lender (Yes) – Buyer (Yes)
  2. CMBS Short Sale: Borrower (Yes) – Special Servicer (Yes) – Lender (No)* – Buyer (Yes)
  3. Receiver Approved Bank Loan Short Sale: Borrower (No) – Lender (Yes) – Court (Yes) – Receiver (Yes) – Buyer (Yes)
  4. Receiver Approved CMBS Short Sale: Borrower (No) – Lender (No) – Special Servicer (Yes) – Receiver (Yes) – Court (Yes) – Buyer (Yes)

* When referring to CMBS loans, I’m using “Lender” as a catch-all for whoever originated the loan

TRUSTEE SALE: In Arizona, the beneficiary of a defaulted loan often pursues a non-judicial trustee sale. In a trustee sale, a trustee, conducts an auction on behalf of the beneficiary and the property is awarded to the highest bidder. The beneficiary can bid at the auction and in many cases will bid up to the outstanding debt. On a bank loan, the lender would make the decision on what to bid to. On a CMBS loan, the special servicer would make that decision.

  1. Bank Trustee Sale: Borrower (No) – Trustee (Yes) – Lender (Yes) – Buyer (Yes)
  2. CMBS Trustee Sale: Borrower (No) – Trustee (Yes) – Lender (No) – Special Servicer (Yes) – Buyer (Yes)

SHERIFF SALE*: Living in Arizona, I really don’t have experience with judicial sheriff sales, but I believe, in layman’s terms, it’s similar to a trustee sale in that the sheriff plays the role a trustee would. The real distinction between the two is that the court must initiate the foreclosure.

  1. Bank Sheriff Sale: Borrower (No) – Court (Yes) – Lender (Yes) – Sheriff (Yes) – Buyer (Yes)
  2. CMBS Sheriff Sale: Borrower (No) – Court (Yes) – Lender (No) – Special Servicer (Yes) – Sheriff (Yes) – Buyer (Yes)

*It is my understanding that in some States, the court can appoint an official that is not necessarily the sheriff to conduct the sale

REO SALE: In a REO sale, the lender / special servicer is the successful bidder at the trustee or sheriff sale and later decides to sell the property. Again, on a bank loan, the lender would be the decision maker. On a CMBS loan, the special servicer would approve the sale. The borrower is out of the picture.

  1. Bank Loan Foreclosure Sale: Lender (Yes) – Buyer (Yes)
  2. CMBS Foreclosure Sale: Lender (No) – Special Servicer (Yes) – Buyer (Yes)

NOTE SALE: Although a note sale doesn’t directly involve the acquisition of a property, the “loan to own” method has become a prevalent way to ultimately acquire commercial real estate. A note sale doesn’t need to be approved by the current borrower, only the bank (on a bank loan) or the special servicer (on a CMBS loan) and the investor purchasing the note.

  1. Bank Loan Note Sale: Borrower (N0) – Lender (Yes) – Buyer (Yes)
  2. CMBS Note Sale: Borrower (N0) – Lender (No) – Special Servicer (Yes) – Buyer (Yes)

DEED IN LIEU OF FORECLOSURE (DIL): A DIL is when a borrower voluntarily hands over the property to the lender or special servicer in order to satisfy a loan.

  1. Bank DIL: Borrower (Yes) – Lender (Yes)
  2. CMBS DIL: Borrower (Yes) – Lender (No) – Special Servicer (Yes)

BANKRUPTCY SALE: This one has the most moving pieces and I wont even attempt to break it down other than to note that it’s another method of obtaining real estate. I did though, find a pretty good article that explains the various nuances involved for those who are interested.

Now a few disclaimers. I’ve covered a wide range of players and acquisition methods and I am by no means an expert nor intimately familiar with every facet involved. I’m sure I left some parties out (Fannie Mae and Freddie Mac) and that there are still many more ways to acquire real estate in our current distressed marketplace. Additionally, there is definitely variations on terminology, players and transactional mechanics from State to State. Furthermore, all of the above is much more complicated and complex and that there are exceptions and extenuating circumstances that could alter how the above is transacted. I also invite any experts (bankruptcy attorney, judge, trustee, etc) who can lend some further insight to please do so.

When you lay all this out, it’s amazing how much things have changed from just putting buyer and seller together. There are many more decision makers who have to be on the same page to close a transaction. And it seems as if there is an endless amount of “chutes and ladders” to keep track of as a distressed property progresses towards a solution. However, for those who have a handle on today’s art of the deal, an abundance of opportunities await.

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  1. In Massachusetts we are also inundated with a variety of non-standard transaction types; most common are short-sales and REO sales which have similar acquisition methods you describe above. It has become almost more common than not that a MLS property is a short-sale so understanding the process to make such a transaction successful is absolutely necessary as buyer, seller, realtor, investor or anyone else involved in buying and/or selling real estate today!

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