Rationale

S&P Global Ratings' rankings on Mount Street US (Georgia) LLP (MSUS) are AVERAGE as a commercial mortgage loan primary and special servicer. On April 14, 2021, we assigned the rankings (please see "Mount Street US (Georgia) LLP AVERAGE Commercial Mortgage Primary and Special Servicer Rankings Assigned; Outlook Stable," published April 14, 2021). The outlook on each ranking is stable.

Our rankings reflect MSUS':

• Experienced and multi-disciplined team focused on providing customized servicing;
• Small staff size and somewhat limited operating history;
• Growing primary servicing portfolio, although scale and investor diversity are lacking relative to higher ranked primary servicers;
• Expanded resources and capabilities to support its CMBS special servicing growth initiative;
• Support from MSUS' ultimate parent company, Mount Street Group Ltd. (MSG), a UK-based commercial mortgage loan servicer and asset manager;
• Diversified training program;
• Utilization of an industry recognized scalable servicing system, accompanied by its own proprietary cloud-based asset management application;
• Solid internal controls;
• Primary servicing asset management activities and responsibilities are limited within the scope of existing servicing mandates; and
• No active special servicing volume and lack of a special servicing resolution track record within the current platform.

MSUS was launched in 2017, with an initial mandate from Aareal Capital Corp. (ACC), the U.S. affiliate of Aareal Bank, to onboard and manage an $8.5 billion portfolio of highly-structured, complex real estate loans. Since, the company has expanded beyond that initial mandate, with additional servicing and asset management client engagements involving ground-up construction, underwriting and credit analysis, and consulting on portfolio distress.

The outlook on each ranking is stable. MSUS maintains the infrastructure to be a capable commercial mortgage loan primary and special servicer. Although MSUS is a relatively new entity with no meaningful track record in special servicing, the recent investment by MPC provides incremental experienced personnel with loan workout experience to support its growth initiative. Additionally, we expect MSUS will maintain the people, processes and technology needed to operate as a capable primary and special servicer consistent with industry standards.

Our ABOVE AVERAGE subranking for management and organization is substantiated by an experienced senior management team that supports the primary and special servicing platform; its comprehensive and diversified training; the use of a scalable primary servicing system; and an internal control environment that is built on a solid framework.

Our AVERAGE subranking for primary servicing loan administration is supported by MSUS' growing portfolio, albeit with a limited scale and lack of investor diversity; an experienced, but small primary servicing team that perform multiple duties across the entire platform; and that MSUS' asset management responsibilities under the mandates of its existing portfolio entail more limited responsibilities than most primary servicers we rank.

Our AVERAGE subranking for special servicing loan administration is substantiated by MSUS asset management personnel available to perform special servicing who are not currently performing such functions and the company's senior managers' experience and track records in previous special servicing roles despite having no active special servicing volume and lacking a special servicing resolution track record within the current platform.

In addition to conducting a virtual meeting with servicing management, our review includes current and historical Servicer Evaluation Analytical Methodology data through Dec. 31, 2020, as well as other supporting documentation provided by the company.

Profile

MSUS is an indirect, wholly owned subsidiary of MSG, which via its network of subsidiaries, manages several asset classes, including performing and nonperforming commercial mortgage loans, as both a primary and a special servicer. MSG oversees a portfolio of approximately €95 billion of credit products across Europe, the Middle East, Africa,, the U.S., and Australia, with a team of more than 150 professionals across 10 offices globally.

Although operational since 2013, MSG was established as a legal entity in 2017 as a result of a management buyout with two investors that hold minority stakes. It is led by a managing partner and CEO with over 35 years of experience in structured finance, asset finance and mortgage debt markets, and a managing partner and global head of financial and business services with over 25 years of experience in the servicing of European debt products.

In the first quarter of 2021, Mission Peak Capital (MPC) acquired a significant minority stake in MSUS providing the firm with additional experienced personnel and resources to take advantage of the perceived market opportunity related to special servicing and higher touch primary servicing assignments. 

MPC was founded in 2008. Its two principals have a combined experience of over 50 years in all facets of commercial real estate including debt and equity investments, distressed debt and non-performing loans, and asset management, as well as CMBS advisors, investors and stakeholders. MPC's 10 person staff have experience in special servicing, commercial real estate appraisal, CMBS bonds, and commercial real estate loan origination and underwriting.

As of Dec. 31, 2020, the primary servicing portfolio was comprised of 303 loans with an unpaid principal balance of $11.2 billion. However, as of Dec. 31, 2020, MSUS had yet to be appointed on any commercial mortgage-backed securities (CMBS) transactions, had no active assets in special servicing, had completed only one special servicing loan workout, and had not completed a real estate-owned (REO) sale in its short history. Additionally, the company has not previously had any active specially serviced assets at the respective year-ends (see table 1).

Table 1

Management And Organization

The management and organization subranking is ABOVE AVERAGE for primary and special servicing.

Organizational structure, staff, and turnover

Within the MSG corporate structure, its managing partner and global head of financial and business services has ultimate responsibility for MSUS and is a resource based on his extensive loan servicing and asset management experience.

An executive director with over 25 years of industry experience, who joined the company approximately one year ago, reports directly to the above referenced managing partner and leads MSUS on a day-to-day basis. His prior experience includes asset management and loan workouts, loan re-underwriting, and portfolio consulting. In addition to the role as executive director, he is responsible for MSUS's special projects and compliance (SP&C) areas. Reporting directly to the executive director are the following:

• A director of servicing and treasury operations with over 20 years of industry experience and nearly two years of company tenure. Experience includes investor reporting, policy and procedures development, process streamlining, rating agency and audit preparation, and staff development. The servicing and treasury operations department's primary functions are the tracking and moving of funds, portfolio surveillance, and investor reporting. Within the department are three senior associates and two open staff positions.
• A director of real estate services with nine years of industry experience and three years of company tenure. Experience includes managing portfolios of performing and non-performing assets, and business valuation. The real estate services department's primary functions are providing asset management and consulting services. Within the department are two senior associates and two open staff positions.
• A senior associate in corporate operations and compliance with over 20 years of industry experience and two years of company tenure. The corporate operations and compliance department's primary functions are day-to-day business administration, compliance (independent of servicing operations with reporting line to global compliance), and support/integration with the global MSG organization. The department also includes an executive assistant.

As of the date of this report, the company has no dedicated special servicing function or activity. However, within the U.S. operations, there are personnel who have loan workout experience, including during the great financial crisis. Additional resources available to support the special servicing functions include the following:

• An executive director of Mount Street Portfolio Advisors (MSPA) with 14 years of industry experience and over three years of company tenure. Experience includes managing non-performing loans (senior and mezzanine positions), primarily within the real estate and hospitality sectors. The executive director oversees management of a non-performing loan portfolio at MSPA, comprising commercial real estate, project finance positions, and other diverse exposures geographically located in the Americas.
• In addition to the aforementioned founder and partners of MPC, its four managing directors have extensive experience in various roles in commercial real estate including non-performing loan workouts, underwriting, production, asset management, appraisal and valuation, acquisition/disposition, capital decisioning, and securities purchases.

MSUS's management team and staff exhibit solid industry experience. Their short average tenure levels reflect the company's limited operating history (see table 2). Further, three employees departed the company during the second half of 2020, including two management level personnel, who joined the company at inception. It should be noted that table 2 does not include any MPC personnel.

Table 2

Training

MSUS provides its management and staff with a diversified array of ongoing, formal internal and external training programs, as well as on-the-job and shadow training, which is typical of similarly sized peers. Training features include the following:

• The company generally classifies training needs as follows:
• Training triggered by a change in the employee's position or assigned duties, as part of a career path or an identified skill gap.
• Externally triggered changes occur that impact company process or protocol.
• Training triggered by the growth and evolution of the company, so that its employees and teams can remain in sync.
• Each new employee is provided with a unique launch plan outlining the specific goals and training objectives for the new recruit for the first 90 days. Much of that training occurs on the job or by shadowing an experienced staff member.
• Required courses are available through MSG's on-line and instructor-led courses related to global data protection regulation (GDPR), bullying and harassment, preventing bribery in business, and preventing money laundering.
• Through ADP, a management services company, employees also have access to more than 600 courses (both on-line and instructor led) covering a broad range of topics.
• MSUS targets 40 hours per employee annually, and training hours are tracked on the company's intranet through the human resources online portal. Managers have the ability to review and assess the training progress of each employee. Training hours are reported to senior management quarterly and deficiencies addressed with the line managers.
• In 2020, the company established a formal training committee, with members from each functional group at various experience levels. Additionally, MSG has a dedicated champion for global training initiatives, who is staffed in London but provides support to MSUS.

Systems and technology

MSUS has effective technology to meet its primary and special servicing requirements. MSUS has well-designed data backup routines and disaster recovery (DR) preparedness and has established good cybersecurity protocols. Key elements of its systems and applications, business continuity (BC), and DR programs and security environment are described below.

Servicing system applications 

MSUS utilizes the following servicing system and technology applications:

• Edge Technology Group (ETG) hosts and manages the MSUS network and file servers. ETG is responsible for the infrastructure that supports the delivery of the loan servicing platform, as well as for providing physical security controls, administration of hardware equipment, and for reporting any security incidents.
• The latest version of McCracken Financial Solutions' Strategy (version 01.19.04) servicing system, via a remote-hosted application service provider, is its servicing system of record.
• A licensed version of RealINSIGHT is the asset-management application of record for the ACC portfolio.
• Beyond the ACC book, MSUS intends to leverage MSG's proprietary asset management system, CreditHub, as its system of record for special servicing and future asset management assignments. CreditHub was designed and built by a team of system engineers, who were acquired by MSG in its acquisition of a bank's distressed portfolio.
• MSUS's proprietary web-based database tool provides increased automation, an intelligent work queue, and links to the data warehouse.
• A variety of key workflows, including borrower requests, new-loan pipeline and boarding activity, billing statement review and approval, are managed through the MSG intranet, as well as cloud-based tools.

Business continuity and disaster recovery 

MSUS maintains a BC and DR plan, including response procedures to address operational disruption as a result of a pandemic event. The company implemented its plan in March 2020 due to the COVID-19 pandemic. Management reported that there were no disruptions to the company's operations or data facilities. Currently, all MSUS employees are working remotely. Management indicates that the company is in the initial stages of planning its return to the office, and is evaluating the exact necessity for the return, as well as space utilization/desk configurations. Further initiatives include:

• The company targets resumption of cash processing and investor reporting within one hour of any disruption event.
• The company's BC and DR plans are tested annually. The most recent test occurred in September 2020, with no material issues noted.
• MSG's technology team oversee a Service Organization Controls (SOC)/International Organization for Standardization (ISO)-compliant technology services vendor, which provides the cloud-based network infrastructure, data backup and data-center management, DR testing, supports hardware needs, and provides 24/7 user-support for all MSG and affiliates offices. The vendor also helps the company manage its cloud-based telephone system and virtual private network.
• Data backups are performed nightly for data incrementally, and full backups are taken every month. The retention policy allows the company to restore files from any point within the past five years within minutes to any chosen location.

Cybersecurity 

MSUS has extensive security processes and controls for protecting private information and preventing cyberattacks, which include security procedures for personal information and vendor information security management. Key features include the following:

• The above referenced technology services vendor leverages a continuous scanning platform that runs daily to alert the security team of any new vulnerabilities. If any urgent, high probability, and high-risk items are found, they are addressed by a cybersecurity incidence response team and taken action upon as soon as possible.
• The latest third-party penetration test in January 2021 did not find any vulnerabilities that can be exploited.
• While MSUS does not maintain its own internet systems or host any applications, its information security policy covers physical office access, information technology (IT) system and file server access management, IT security guidelines, and incident reporting.
• MSUS' vendors maintain robust information security management programs (adhering to ISO 27001 guidelines). Additionally, MSG maintains a master register of data processing activities and conducts an annual risk assessment of vendors based on:
• The significance/materiality of the services they provide;
• The type of, and, need to, transmit and process personal data;
• The availability of the controls within supplier locations; and
• The availability of confirmation that the suppliers are aware of and abide by MSUS' internal policies and controls.

Internal controls

MSUS manages risk through its policies and procedures (P&Ps), compliance, and quality control, and a sound audit program, albeit with a limited history.

Policies and procedures 

• MSUS has well-documented, centrally managed P&Ps for primary servicing, special servicing, and REO, which are accessed through the company's intranet. There are also extensive desktop procedures available to servicing staff.
• MSUS reviews its P&Ps at least annually, with the SP&C team responsible for administering updates. The P&Ps were last updated in January 2021.
• The MSUS internal audit program provides objective assurance over its P&Ps, through secondary, independent oversight.

Compliance and quality control 

MSG's global compliance program entails a risk-based approach (based on a risk assessment matrix) that enables compliance intensity depending on the potential consequences of non-compliance. MSUS management has established, through its P&Ps, quality control steps for all major operational transactions. The MSUS SP&C team was formed in January 2019 as an independent arm of MSUS to:

• Administer P&P updates;
• Champion MSG's change process;
• Oversee corporate compliance;
• Facilitate external audits; and
• Run the internal audit program.

The SP&C team tracks, monitors, and centrally publishes corporate compliance metrics via the intranet, and reports exceptions to the relevant servicing committee.

Internal and external audits 

The MSG global audit committee was formed in February 2019 to provide independent, objective assurance over the company's risk management, internal controls, governance, and processes. Additionally, the committee:

• Oversees global audit activities (internal and external);
• Serves as a secondary, independent oversight body of SP&C; and
• Provides a consistent structure and approach to measurement of risk across the global organization.

The MSUS internal audit program was launched in 2019. The U.S. internal audit policy, which was last reviewed in April 2020, is administered quarterly by members of the SP&C department to provide independent, objective assurance over the company's policies, procedures, internal controls, and risk management. Internal audits performed during the first, second, and third quarters of 2020 indicated one finding for which corrective action was completed.

An independent, public accounting firm conducts SOC-1, Type 2 reviews annually. The year-end 2020 audit did not reveal any material findings. To date, the company has not performed, nor has it been required to perform, a Regulation AB or Uniform Single Attestation Program audit. Additionally, MSUS is also subject to periodic reviews and audits from clients. The last on-site client audit was performed in October 2019 with no findings indicated.

Vendor management

MSUS has a controlled process for the procurement, management, and payment of its vendors. An approved vendor list is maintained for centrally monitoring vendors. Highlights of vendor management include the following:

• The company utilizes centralized vendor management procurement and monitoring process, which is under the MSG legal and compliance area.
• National vendor relationships have been established with firms having multiple offices, and the strategic use of local vendors is utilized, where appropriate, to minimize expenses.
• Prior to engagement, at least two bids are required and all bids for services undergo a multi-level review of service agreement/contracts by the manager of the vendor and legal.
• Centralized responsibility is with the manager of the vendor for obtaining documents, reviewing bills, and vendor set-up.
• Payments require the manager of the vendor's and corporate approval.
• For specially serviced loans, the asset manager (AM) is responsible for the engagement of subcontractors, which may include property management companies, outside counsel, note sale advisors, receivers, appraisers, engineers, environmental consultants, leasing brokers, and sales brokers.

Insurance and legal proceedings

MSUS has stated that its directors and officers, as well as its errors and omissions, insurance coverage is in line with the requirements of its portfolio size. As of the date of this report, the company reported there were no pending material servicing-related legal matters.

Loan Administration--Primary Servicing

The loan administration subranking is AVERAGE for primary servicing.

During 2020, the primary servicing portfolio grew over 20.0% by unpaid principal balance (UPB) and 16.0% by the number of loans from the previous year, totaling $11.2 billion as of Dec. 31, 2020, comprising 303 loans. However, we note that the MSUS portfolio is amongst the smallest of the primary servicers we rank.

Delinquencies as of Dec. 31, 2020, were 4.5% of the portfolio compared with 0.0% as of the prior yearend (see table 3). Specifically, delinquencies were made up of 10 loans secured by lodging properties (representing 15.7% by UPB and 14.2% by loan count, for that property type), and one loan secured by a retail property (representing 7.5% by UPB and 2.0% by loan count, for that property type). The lodging properties are located in metropolitan areas with extended strict mandates regarding capacity in public spaces due to the COVID-19 pandemic. The retail property is an enclosed mall southeast of Chicago.

Property types securing the underlying loans are somewhat diverse. As measured by UPB, the portfolio contains primarily office (47.0%), lodging (24.0%), mixed-use (16.0%), and retail (11.0%) properties. Geographic diversity is somewhat limited because over 56.0% of the portfolio by UPB is secured by properties in New York and California (see table 4). Additionally, the portfolio lacks investor-type diversity, relative to higher ranked primary servicers because 100% is concentrated with a small number of bank/financial institution clients (see table 5).

According to MSUS management, the portfolio was most impacted during 2020 in the areas of maturing loans and lockboxes. During the year, 80 loans matured, of which 76 ($2.3 billion UPB) were extended, and four (UPB of $113 million) were paid in full. During this period, lockboxes were sprung on 70 loans ($2.8 billion UPB) of which, 32 (46.0%) were secured by lodging properties and 24 (34.0%) were secured by retail properties.

Table 3

Table 4

Table 5

New loan boarding

Based upon its stated practices and written procedures, MSUS has an effective loan setup function. Controls and other features of new loan setup include the following:

• The loan servicing department boards all new loans onto Strategy within three business days after receipt of the minimum loan documents, but in all cases, within the minimum timeframe required by the governing client agreement.
• In the event that a portfolio of loans must be boarded simultaneously, the relationship manager (RM) assigned to each servicing client engages IT to automate the boarding of the loans via data-tape.
• Loan terms, balances, and escrows are loaded onto Strategy by servicing personnel. The initial setup will include preliminary property, tax, insurance and Uniform Commercial Code (UCC) records, which will later be more fully populated by portfolio management staff.
• Initial loan setup undergoes a quality control review by a secondary member of loan servicing.
• Borrower welcome letters are automatically generated within three days after boarding.
• Due to the highly structured nature of the loans MSUS services (and plans to continue servicing based on its target market as a third-party servicer), an extended boarding process generally occurs within 30 days of a new servicing assignment, and typically includes:
• Tax, insurance, and UCC review (all tax records confirmed by the tax service vendor);
• Abstracts and boarding of financial reporting requirements and minimums/thresholds onto the asset management system;
• Ticklers for recurring and time-bound deliverables;
• Cash management abstracts (for active and inactive cash managed deals) and waterfall templates for actively cash managed deals;
• Financial modeling of the transaction to monitor covenant compliance; and
• Identification and resolution of post-closing obligations and collateral documentation.
• During 2020, the company boarded a total of 45 loans.
• As of Dec. 31, 2020, there were no trailing documents outstanding on loans boarded more than six months ago.

Payment processing

MSUS's practices and integrated technology tools efficiently address payment processing, cash management, and other complex loan structures with appropriate segregation of duties. Highlights of payment processing include the following:

• As of Dec. 31, 2020, 100% of reported payments were received by wire.
• Incoming funds are processed through the company's proprietary cloud-hosted database tool.
• Delegations of authority are used to authorize movement of funds.
• Clearing accounts are reconciled daily.
• As of Dec. 31, 2020, 118 loans were cash-managed, representing approximately 39.0% of the entire portfolio.
• As of Dec. 31, 2020, no items were classified in suspense.

Investor reporting

MSUS is reasonably well-experienced with customized third-party reporting requirements. MSUS has adequately segregated responsibilities for reporting, remitting, and related account reconciliation processes. Other highlights include the following:

• MSUS utilizes a standardized remittance report that is customized for each investor.
• Remittance reports are prepared with two levels of review and approval.
• Treasury reconciles activity in the investor account against the remittance report to agree to cash.
• Treasury circulates remittance vouchers to initiate money movement to investors.
• Remittance reports are distributed to clients/investors via email.
• During 2020, no penalties were incurred for late reporting or late remitting, and there were no unidentified items.

Escrow administration

The company has adequate controls for escrow administration activities. MSUS has dedicated teams for tax and insurance administration, and asset managers handle loan-level reserve monitoring and analysis for other escrowed events, such as tenant improvement and replacement reserves. Other features include the following:

• A third-party vendor administers real estate taxes.
• Insurance compliance reviews are completed at new loan set-up and annually upon renewal of the policies.
• The company has a force-placed policy with a 90-day look-back period, that includes hazard and flood coverage.
• Tax and insurance escrow analyses are completed at least annually and are tracked in the servicing system.
• Reserve and escrow accounts are reconciled at least monthly.

Asset and portfolio administration

MSUS has adequate procedures covering asset and portfolio administration tasks; however, the asset management responsibilities under the mandates of its existing portfolio entail more limited responsibilities than most primary servicers we rank. The RM assigned to each servicing client is the primary point of contact for that client, directing cross-functional workflow internally. RMs are singularly responsible for corporate compliance and are located across functional groups at a variety of positions to minimize key risks.

• A daily delinquency report is generated with day-end reports and is monitored by a senior loan servicing associate.
• The company does not presently have an active requirement from its investors to maintain a watchlist. In anticipation of this being required in the future, the technology team is working to develop reports within CreditHub using data sourced via a feed from Strategy.
• Property financial statement collection and review is tracked in the Strategy system. Financial analyses and modeling is performed in the company's proprietary web-based database tool.
• Financial reporting obligations are monitored and collected by the surveillance team.
• The MSUS surveillance team has developed a financial model to monitor covenant compliance, which is updated quarterly on receipt of borrower financials and property information.
• The financial model is used to monitor loan events, check financial covenants under the loan, and monitor aspects of the property collateral.
• The company's current mandates do not require it to perform property inspections, but management indicates personnel have extensive experience in conducting property inspections using the Commercial Real Estate Financial Solutions (CREFC) property inspection (and other) forms.
• UCC refiling dates are tracked within the loan servicing system. When engaged, continuations are prepared and filed using CT Lien Solutions.

Borrower requests

MSUS management has indicated that within the current mandates with its clients, it is not directly involved in reviewing and processing borrower consents. However, the company's P&Ps describe processes for the following borrower consent activities:

• Future funding/advance requests;
• Reserve disbursements;
• Collateral releases/substitutions;
• Assumptions/modifications/waivers; and
• Lease approvals and modifications.

Early-stage collections

MSUS proactively handles early-stage collections. Noteworthy features include the following:

• The servicing system tracks payment due dates across the portfolio in real time and generates late notices at five days and 10 days after the payment due date.
• The responsible asset managers are alerted about delinquencies as each is identified daily.
• The first collection attempt is made within three business days (but often occurs the same day in practice according to management).
• Portfolio-wide delinquencies are reported to each client relationship manager weekly, who in turn reports the delinquencies and status actions to their clients.
• Individual action plans in response to aged delinquencies are determined in consultation with the MSUS servicing committee.

Loan Administration – Special Servicing

The loan administration subranking is AVERAGE for special servicing.

MSUS does not currently have an active special servicing portfolio and lacks a track record of loan resolutions and REO sales. Therefore, the special servicing loan administration subranking considers MSUS' senior managers' experience and track records in previous special servicing roles. It also considers our review of its special servicing P&Ps, which demonstrate a proactive and thorough approach to loan resolutions and REO management and sales.

In addition to its Atlanta headquarters, MSUS special servicing personnel from its MSPA affiliate, located in New York, have loan workout experience. Although it reported seven asset management personnel who are available to perform special servicing, none are currently performing such functions. Loan asset managers will also oversee foreclosed properties.

MPC's recently closed investment in the firm provides the company with additional resources to grow and support its special servicing platform. As previously noted, MPC's partners have experience in all facets of commercial real estate, including debt and equity investments, distressed debt and non-performing loans, and asset management, as well as CMBS advisors, investors, and stakeholders. Additionally, MPC's staff has experience in special servicing, commercial real estate appraisal, CMBS bonds, and commercial real estate loan origination and underwriting.

Loan recovery and foreclosure management

MSUS' P&Ps describe properly controlled loan workout and foreclosure management processes. Highlights include the following:

• Special servicing AMs are assigned and involved early in the process. The P&Ps contain steps for both loans transferred internally or from another servicer.
• Within 20 days of a loan transferring to special servicing, the AM is expected to perform an initial file review, including loan documents; obtain missing documents, including guarantor and property financials; engage counsel (if appropriate); obtain a pre‐negotiation agreement; and perform or engage a third-party to perform a property inspection.
• The company expects to strategically utilize short-term forbearance agreements as part of its loan recovery process. The P&Ps indicate that forbearance should be used as a tool, rather than a resolution strategy.
• A dual-track strategy of filing for foreclosure while also negotiating with the borrower is expected to be typically utilized.
• Resolution plans are to be presented to the special servicing committee for approval within 45 days of transfer.
• According to the P&Ps, the resolution plan should include a summary of all relevant factors related to the current situation, the best strategy for minimizing losses and maximizing recoveries, the basis for that conclusion compared to other strategies, PSA requirements, a third-party report and market summary, legal considerations, and for CMBS loans, an analysis of the highest NPV recovery to the trust.
• Asset status reports are produced at least annually for CMBS loans and as required by the terms of the governing client agreement for balance sheet loans.
• If foreclosure is the recommended strategy, the AM will obtain a firm understanding of enforcement options in the state where the property is located, hire counsel and property management, track court deliverables and key dates (in the workflow portal on the company's intranet), and prepare an REO business plan within 30 days of acquisition or foreclosure.
• Business plans are to include a detailed NPV analysis and recommendation for foreclosure bidding and REO conversion, are approved by the special servicing committee, and are reviewed with the lead asset manager thereafter.
• During 2020, MSUS resolved one specially serviced mezzanine loan via a note sale (see table 6).
• Prior to the transfer of title, the AM is to evaluate and update the environmental assessment. If the property has a significant environmental issue, the client and counsel should be consulted. Additionally, any life/safety issue associated with the property is to be addressed as soon as possible.

Table 6

REO management and dispositions

MSUS's P&Ps call for proactive REO management and sales oversight. Notable aspects include the following:

• Following the selection process (as described in the Vendor management section), the AM coordinates the execution of a property management agreement to take place upon the transfer of ownership of the property.
• The AM coordinates with the company's tax and insurance team to calendar the property taxes and place the property into the REO insurance program (if necessary).
• MSUS uses a standard property management agreement that requires property managers (PMs) to prepare a standard monthly reporting package.
• The AM reviews the monthly reporting package to monitor the ongoing performance of the property. The reporting package is to include (but not be limited to) rent roll, profit and loss (including comparison to budget), balance sheet, cash flow statement, aged receivables and payables, check/deposit listing, bank account reconciliation, and general ledger.
• The PM performs an annual budgeting and reforecasting, as needed, which is subject to an internal review and approval process, and subsequent reporting to investors pursuant to pooling and servicing agreement (PSA) requirements.
• The REO business plan is to include a marketing plan and timeframe, and a budget for the property, including its funding requirements for remedial fixes to the property prior to it going to market.
• The P&Ps indicate that the sales broker should be involved early in the process to assist with value determination, which will help with the decision of selling the asset as-is or stabilizing the property and then selling.
• The AM is to coordinate all aspects of the property sale, including engaging the sales broker and managing any due diligence period. This process is generally expected to include negotiation of the purchase and sales agreement, collection of sales deposits, transition of the PM, transfer or closure of bank accounts, recording of sale, reporting to the master servicer of final determination/loss, and archiving of loan and REO asset files.

REO accounting and reporting

MSUS' documentation of controls and procedures for property-level accounting and oversight are adequate. Highlights include the following:

• Dual REO operating accounts are set up with property management companies.
• MSUS has the capabilities and infrastructure for PMs to send financial reports electronically, and for the monthly reporting package data to be uploaded to its system of record.
• MSUS has not established a formal program to conduct on-site audits of PMs at this stage of the development of its special servicing operations.

Performing loan surveillance

MSUS P&Ps contain an industry standard approach as to how it intends to monitor performing loans for all portfolios where it is appointed as special servicer. Aspects of such performing loan surveillance include:

• For each pool for which the company is the named special servicer, the RM will work with the MSUS surveillance team to set up a surveillance program to monitor the status of the performing loan pool and proactively identify issues. Various tools will be utilized to allow a collateral-level view of the CMBS pool and the ability to monitor major tenant issues (such as bankruptcies for national tenants) and potential lease expirations.
• Surveillance personnel will analyze the portfolio on a quarterly basis, unless a situation emerges (from monitoring) that would have a material impact on the trust's collateral. The surveillance team will refer the issue to the RM, who will work with the special servicing committee to determine if the asset should move to the watchlist.
• The CREFC watchlist will be used for all CMBS assignments and for balance sheet engagements as required by the agreed upon scope. The watchlist is prepared and reviewed in accordance with the frequency and criteria set out in the relevant client contract and reviewed by the special servicing committee no less than quarterly. For non-CMBS loans the criteria for adding or removing a loan from a watchlist are generally set out in the relevant servicing agreement or agreed separately with the client in writing.
• If the surveillance team determines that a CMBS loan fails to comply with the financial or other covenants, or meets the criteria for inclusion on the watchlist, as appropriate, the matter will be referred to the special servicing committee for a decision on the course of action to be taken. In the event a balance sheet loan violates watchlist criteria, a dialogue with the relevant lender is to be instigated by the RM.

Legal department

MSUS does not have in-house legal staff dedicated to supporting special servicing. However, MSG provides legal support through its legal and compliance area. Other notable aspects of how the special servicing legal function is expected to be controlled include the following:

• The MSG legal staff will control the outside counsel engagement process, as well as an approved attorney list.
• The engagement of counsel will be coordinated by the AM and the executive director.
• Asset managers must review and approve legal bills before the accounting department makes any payment.

Financial Position

The financial position is SUFFICIENT.

In light of the assigned rankings, outlook, and financial position, we will add MSUS to our Select Servicer List.

Related Research

• Mount Street US (Georgia) LLP AVERAGE Commercial Mortgage Primary and Special Servicer Rankings Assigned; Outlook Stable, April 14, 2021
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