NEW YORK CITY-After commercial mortgages took a nose-dive during the credit crisis, the role of special servicing is continuing to increase. But given the large influx of loans and ownership changes, many in the industry are concerned about the fate of CMBS.
"Investors are becoming increasingly skittish over potential conflicts between existing CMBS borrowers and the ownership interest in the special services," says Stephanie Petosa, managing director at Fitch Ratings in a report. "Additional issues attracting market attention are fair market valuations and special servicers’ expansion into related fee-generating businesses."
One of the biggest players in the special servicing world has been C-III, who entered a definitive agreement to acquire Princeton, NJ-based NAI Global in June and acquired JER Partners’ CDO management business in September. Another example is the recent acquisition of Rockwood Advisors by Fortress, which aligns Rockwood’s investment sale platform with Fortress’ special servicing unit, CW Capital. Additionally, Berkadia has formed an in-house brokerage team and LNR Partners has formed a loan advisory group, Archetype, which has participated in real estate auctions with Auction.com.
As a result, the rise in special servicing has led to company consolidations and staff changes. Fitch says after LNR’s recapitalization in July 2010, a new senior management team was brought in, while some of the long-time senior executives have departed. While the ratings agency believes the managers that left were “key to the organization,” Fitch says LNR has maintained a “deep and experienced bench.” At the same time, Fitch “will continue to closely monitor their staffing levels.” The company has also kept a close eye on the C-III/JER deal, which resulted in the withdrawal of the JER servicer rating and the affirmation of the C-III servicer rating.
According to data from Fitch, LNR is ranked first in terms of highest named special servicer, with CWCapital in second and C-III in third place. LNR is the named special servicer of 14,607 loans, amounting to $192 billion, while CWCapital is the named special servicer of 12,787 loans amounting to $156.8 billion; C-III is the named special servicer of 14,055 loans, amounting to $147.5 billion; Midland is the named special servicer of 5,500 loans, amounting to $62 billion; Berkadia is the named special servicer of 5,358 loans, amounting to $27.7 million; and Helios the named special servicer of 2,010 loans, amounting to $26.9 billion.
Unnamed sources previously told GlobeSt.com that the increase in special servicing is a reflection of a slow-brewing trend: private equity firms are figuring out how to maximize profits by getting into the brokerage business, while smaller brokers are simply trying to survive in an increasingly big global marketplace.
But others say the acquisitions are consistent with recent trends. Sandy Monaghan, managing director of the Capital Markets Group at Cushman & Wakefield, told GlobeSt.com that C-III, and many other private equity firms, first made strategic acquisitions within the commercial mortgage loan servicing business in early 2010, as the number of underperforming loans being transferred to the special servicers was steadily increasing, he explained.
“More recently, as the inventory of underperforming loans and REO assets available for sale has increased, and market conditions and property values have begun to recover, these same firms have begun to either form brokerage teams or acquire brokerage firms to assist with the sale of these assets,” Monaghan said.
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