NEW YORK CITY—There's been a shift the roster when it comes to the players in CMBS special servicing. In a year-end review of servicing trends, Fitch Ratings sees a move toward third-party firms even as the “traditional cartel” of legacy special servicers, which invested in controlling bond positions, continues to hold the largest balance of active special servicing.

The three 800-lb. gorillas of special servicing—LNR Partners LLC, CWCapital Asset Management LLC, and C-III Asset Management LLC—maintain 82% (by loan count) of the active CMBS special servicing total, including REO, as of this past Dec. 31. However, Fitch says, “by named balance, the shift to third-party special servicing is evident as Midland Loan Services and Wells Fargo Bank (who do not invest in controlling bond positions) rank first and second, respectively, for named CMBS by balance” excluding Fannie Mae in the multifamily space.

Between them, Midland and Wells Fargo hold more than $250 million by unpaid balance of Fitch-0rated CMBS loans, according to Fitch data. LNR, CWCapital and C-III, among them, hold slightly more than $215 million in UPB.

Runoff of legacy CMBS is expected as loan maturities through the third quarter of this year “will significantly reduce the named special servicing portfolios of the legacy cartel, as well as the continued dispositions of those assets,” Fitch says. “Rialto Capital, who has been an active B-piece buyer since 2011 and also has a captive servicer, will likely be the largest named non-third party CMBS special servicer by year-end.”

Rialto's rise to prominence among special servicers points to a larger trend: Fitch notes that the shift to third-party servicers dovetails an influx of new B-piece buyers, which have been active in CMBS since 2010 without affiliate servicers.

“Many of these buyers engage special servicers to perform due diligence on new transactions and retain them as special servicer,” according to Fitch. “Several of these new buyers are not always loyal to a single servicer, often choosing to spread assignments among multiple third-party servicers.”

Fitch says its loan-level servicers continue to be heavily weighted toward non-CMBS servicing “as they concentrate on balance sheet, general account and third party loans.” The ratings agency's loan-level special servicer rating is assigned to special servicers typically engaged to manage individual loans, as opposed to portfolio or multiborrower CMBS transactions.

Generally, they have smaller, specialized staff and portfolio or workout volumes that do not require the staff and technology infrastructure resources associated with special servicing large pools of loans, Fitch says. These servicers often are affiliated with historically non-CMBS originators and typically have limited CMBS assignments for single borrower, single asset fixed or floating rate transactions.

Fitch's 36 rated special servicers, including those at both conduit and loan-level, ended the year with a total named portfolio of $1.5 trillion in outstanding balance. The “vast majority,” or 70% by balance, of that was in CMBS servicing.

Fitch cited additional trends in CBS in its year-end review. Among these were: potential securitizations of balance sheet assets by traditionally non-CMBS servicers as well as minimal growth in named CMBS by Fitch-rated Canadian special servicers, as a result of anemic deal volume, and minimal CMBS defaults in the market.

Instant Insights /

Third Parties Gain Ground in CMBS Special Servicing

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