OVERVIEW
- We affirmed our overall STRONG ranking on LNR Partners LLC (LNR) as a commercial mortgage loan special servicer.
- LNR, headquartered in Miami Beach, Fla., is a market leader in both CMBS and commercial real estate special servicing and debt investing. The firm is a subsidiary of Starwood Property Trust Inc., a publicly traded commercial mortgage REIT that focuses on originating and investing in commercial mortgage loans and other commercial real estate-related debt investments.
- The outlook is stable.
NEW YORK (S&P Global Ratings) June 18, 2020--S&P Global Ratings today affirmed its STRONG ranking on LNR Partners LLC (LNR) as a commercial mortgage loan special servicer. The outlook is stable. Our ranking reflects LNR's:
- Experienced and tenured senior managers and asset management staff, accompanied by a well-defined organizational structure;
- Well-automated technology systems that include a proprietary asset management system supporting its platform, allowing for efficient leveraging of its operations;
- Effective internal controls, including well-detailed policies and procedures for special servicing operations and a high degree of workflow and process automation for asset management activities;
- A highly effective and well-regarded analyst training program; and
- Demonstrated ability to successfully resolve a high volume of defaulted CMBS loans and manage real estate-owned (REO) assets of all levels of complexity, albeit with lengthier REO hold periods than those of its peers.
Since our prior review (see "Servicer Evaluation: LNR Partners LLC," published Feb. 14, 2019), the following changes and/or developments have occurred:
- Loan resolution activity reduced LNR's active specially serviced loan portfolio to $1.7 billion and 104 loans as of Dec. 31, 2019, from $4.0 billion and 190 loans as of June 30, 2018.
- REO liquidation activity reduced the unpaid principal balance (UPB) of active REO inventory to $3.3 billion (205 REO loans with 270 collateral properties) from $4.9 billion (313 REO loans with 445 collateral properties).
- The average age of the REO inventory since original transfer to special servicing, rose to 44.6 months from 37.9 months; this average hold period is the longest amongst the CMBS special servicers we rank.
- LNR increased its named special servicing portfolio to 185 CMBS/Freddie K-series securitized transactions from 167, and the underlying collateral increased to 6,425 loans with a UPB of $93.8 billion as of Dec. 31, 2019, from 5,804 loans with a UPB of $76 billion as of June 30, 2018.
- The director of the borrower services group departed, replaced by an internal candidate with 22 years of industry experience.
- LNR completed a number of IT upgrades, including implementing a new electronic document approval system.
- LNR transitioned portions of its third-party loan servicing system to its proprietary asset management system to track property taxes and insurance and replace email with a workflow process.
We note that as of the date of this release that LNR's REO portfolio includes 11 properties that must be sold prior to year-end pursuant to REMIC requirements. While several of the properties are currently under contract for sale and the balance of the assets are being actively marketed, economic conditions have deteriorated due to the COVID-19 pandemic that could hamper these efforts. We will monitor the disposition of these assets during 2020 but believe that recent events highlight the risks associated with pursuing resolution strategies that require lengthy REO hold periods. LNR maintains a disaster recovery and business continuity plan, including response procedures to address operational disruption. The company implemented its plan companywide on March 17, 2020, due to COVID-19. Management reported that there were no disruptions to the company's operations or data facilities, and that all of its employees began working from home at that time. As of the beginning of June, management noted that while it had reopened its Miami office, the vast majority of its staff has continued to work from home, an option they have been provided. The outlook for the ranking is stable. Despite challenges presented by the COVID-19 pandemic, we believe LNR has a deep bench of experienced workout personnel that it can redeploy across the servicing platform to maintain adequate staffing to mitigate the anticipated increase in special servicing volume during 2020. The financial position is SUFFICIENT.
Related research
- Select Servicer List, May 1, 2020
- U.S. Commercial Mortgage Servicers Preparing For Impact From COVID-19, April 3, 2020
- Starwood Property Trust Downgraded To 'BB-' As Margin Call Risk Increases From The Impact Of COVID-19; Outlook Negative, March 26, 2020
- Starwood Property Trust Inc., Aug 22, 2019
- Servicer Evaluation: LNR Partners LLC, Feb. 14, 2019
- Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019
| Servicer Analyst: | Steven Altman, New York (1) 212-438-5042; steven.altman@spglobal.com |
| Secondary Contact: | Benjamin Griffis, Centennial (1) 303-721-4672; benjamin.griffis@spglobal.com |
| Analytical Manager, Servicer Evaluations: | Robert J Radziul, New York (1) 212-438-1051; robert.radziul@spglobal.com |
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