While Fitch has seen significant interest in special servicer ratings recently
and assigned five new ratings last year, only Rialto was actively buying
B-Pieces. Of the new servicers, each has a different platform and market focus.
Two have significant CMBS positions, two are servicing non-performing
transactions, one is a CDO manager and large loan special servicer, and one is a
GSE (Freddie Mac ). Fitch believes the continued growth in CMBS issuance supports
a broader range of special servicers.
Fitch's criteria for rating special servicers are not predicated on the size of
a company's special servicing portfolio. Instead, Fitch assesses the special
servicer's ability to manage distressed commercial real estate loans. Fitch also
considers a special servicer's financial strength, internal controls, staff
workout experience and technology. While Fitch receives a great deal of interest
from companies looking to be rated, only well-established companies with proven
workout experience meet its rating standards. As a result, not all companies
meet Fitch's criteria.
Fitch expects continued interest in special servicer ratings and to a lesser
degree primary servicer ratings in 2013. Master servicing has consolidated with
four commercial banks and Berkadia pursing new master servicing assignment. As
such, the highly competitive bidding environment for master servicing and
significant infrastructure needed makes new entrants unlikely.
Special servicers rated by Fitch in the last 12 months are:
--Freddie Mac (CMBS special servicer rating 'CSS2-'):
Freddie Mac does not currently special service CMBS transactions. However, its
multifamily asset management and operations group is responsible for the
surveillance and workout of Freddie Mac's portfolio of more than 8,800
multifamily loans and loans underlying Freddie Mac's financial guarantees
(representing $94 billion as of Sept. 30, 2012). The group has extensive
experience in multifamily housing across the U.S.
--Rialto Capital Advisors, LLC (RCA; CMBS special servicer rating 'CSS2-'):
RCA is the operating entity that performs special servicing and asset management
for Rialto Capital Management (Rialto). Rialto was founded in 2007 by the former
cofounders of LNR Property Corporation (now LNR Partners, LLC) and is a real
estate investment and management company focused on distressed real estate
assets. As of June 30, 2012, RCA's active special servicing portfolio consisted
of more than 8,000 loans totaling $4.4 billion of UPB. This includes 3,005 REO
assets representing more than $2.1 billion UPB. About 63% of the loans by UPB
were on vacant land or residential properties (81% by loan count). RCA has
purchased B-pieces in 16 CMBS transactions as of year-end 2012.
--Sabal Financial Group, L.P. (Sabal; CMBS special servicer rating 'CSS3'):
Sabal was established in 2009 by the founder of IndyMac Commercial Lending
Corporation. Sabal is a financial services company with three primary business
lines: credit advisory services, loan portfolio investments, and real estate
lending. Sabal services acquired portfolios of distressed and performing assets
for funds of Oaktree Capital, which owns a significant non-controlling equity
stake in Sabal. Sabal was recently named asset manager for the ORES Series
2012-LV1 non-performing loan transaction.
--Strategic Asset Services, LLC (SAS; CMBS special servicer rating 'CSS3'):
SAS was formed to manage the commercial real estate assets of H/2 Capital
Partners (H/2) and other third parties. While independent of H/2, SAS is related
through common ownership and shared resources. As of Sept. 30, 2012, SAS was
named special servicer on 48 non-CMBS commercial mortgage loans. The unpaid
principal balance (UPB) on these loans is $5.1 billion. Of this amount, there
are nine actively special serviced loans with a UPB of $1.3 billion and two REO
assets with a UPB of $117.1 million. SAS expects to be appointed by H/2 as
special servicer on additional CMBS loans and transactions, for which H/2 is the
controlling class representative. SAS, through its predecessor company, has
been providing primary and special servicing for commercial real estate since
--Urdang Capital Management, Inc. (UCM; CMBS large loan special servicer rating
UCM was founded in 1987 to provide real estate investment management services to
institutional investors. In February 2006, UCM was acquired by the Bank of New
York and is a wholly-owned subsidiary of BNY Mellon. UCM has invested and
managed over $6.7 billion of institutional-quality commercial real estate
properties. UCM also established its first separate account relationship in 1988
and launched two commingled funds in 2003 and 2008. Additionally, UCM was
appointed as investment advisor for the Capmark VII CDO in 2009. Concurrent with
the assignment of the CLLSS rating, UCM is expected to name itself as special
servicer for the loans in this transaction.
Fitch rates special servicers, which are key to effectively monitoring, working
out, and disposing of distressed commercial mortgages and real estate-owned
In assessing the capabilities of special servicers, Fitch reviews several key
factors, including the nature of its serviced portfolio, the management team and
staffing, internal controls, and conflicts on interest, operating history,
financial condition, information systems, as well as workout and asset
disposition experience and strategies. While focused on CMBS, Fitch considers
its entire special servicing capabilities.
Fitch rates commercial mortgage primary, master, and special servicers on a
scale of 1 to 5, with 1 being the highest rating. Within each of these rating
levels, Fitch further differentiates ratings by plus (+) and minus (-) as well
as the flat rating.