Ranking Overview | ||||
---|---|---|---|---|
Subrankings | ||||
Servicing category | Overall ranking | Management and organization | Loan administration | Outlook |
Commercial primary | ABOVE AVERAGE | ABOVE AVERAGE | ABOVE AVERAGE | Stable |
Commercial special | ABOVE AVERAGE | ABOVE AVERAGE | ABOVE AVERAGE | Stable |
Financial position | ||||
SUFFICIENT |
Rationale
S&P Global Ratings' rankings on Situs Asset Management LLC (SAM) as a commercial mortgage loan primary servicer and on Situs Holdings LLC (SH) as a commercial mortgage loan special servicer (collectively, Situs) are ABOVE AVERAGE. On May 27, 2021, we affirmed the rankings (please see "Situs Asset Management LLC And Situs Holdings LLC Servicer Rankings Affirmed; Outlook Stable," published May 27, 2021). The outlook on each ranking is stable.
Our rankings reflect Situs':
- Experienced senior management team, albeit with some notable leadership changes since our last review;
- Diversified and ongoing training plans for employees;
- Effective technology systems with extensive disaster recovery plans;
- Well-defined operational processes and established policies and procedures; and
- Solid history of special servicing loan resolutions.
Since our prior review (see "Servicer Evaluation: Situs Asset Management LLC And Situs Holdings LLC," published March 1, 2019), the following changes and developments have occurred:
- In June 2019, Situs Group Holdings Corp. acquired American Mortgage Consultants Inc. (AMC), and the merged companies became SitusAMC.
- In July 2019, following the merger, the Situs CEO left the company and was replaced by the AMC CEO, an executive with extensive industry experience.
- Funds managed by Stone Point Capital (Stone Point), a private equity firm, sold a 34.97% ownership interest in SitusAMC to Public Sector Pension Investment Board, a large Canadian pension fund. Stone Point maintains a 49.28% ownership of SitusAMC.
- In July 2019, the Situs chief information officer (CIO) resigned and an internal candidate promoted to this position.
- In July 2019, SitusAMC hired a new managing director/head of U.S. servicing, asset management, and special servicing, as well as a new managing director/head of client services for U.S. servicing, asset management, and special servicing. Both individuals have extensive industry experience, most recently in senior leadership positions with Cohen Financial (Cohen) for 12 years.
- In March 2020, the executive managing director responsible for primary and special servicing left the company, and his duties were ultimately assumed by the two new previously mentioned managing directors along with a senior director of special servicing.
- In March 2020, SitusAMC acquired CJC Technologies, adding the CLOSER array of technology solutions to their systems platform.
- In June 2020, Situs added a highly experienced senior director who was most recently the executive vice president (VP) for another S&P Global Ratings ranked servicer, with a mandate to expand its special servicing unit to handle the expected wave of mortgage delinquencies and defaults resulting from the pandemic.
- In September 2020, Situs acquired the third-party loan servicing and asset management platform of Cohen. This strategic acquisition resulted in the addition of approximately 6,900 loans ($34 billion in unpaid principal balance [UPB]) to the portfolio and the hiring of over 120 individuals previously employed by Cohen.
- Situs executed a master services agreement with a government-sponsored enterprise (GSE) to help provide loss mitigation and real estate-owned (REO) management services for the GSE's portfolio.
- In November 2020, SitusAMC acquired rSquared CRE LLC, which provides a valuation, underwriting, and asset management software, and a budgeting and reforecasting software.
- In 2020, Situs began an initiative with each business unit, performing a formal assessment of its activities to identify potential risk and their controls.
- In 2020 the company opened an additional office in Leawood, Kan., where the majority of the legacy Cohen employees and the new senior leadership team are based.
- In early 2021, an S&P Global Ratings ranked servicer exited the commercial mortgage-backed securities (CMBS) special servicing business and Situs replaced the servicer on 23 transactions that had a UPB of $14.1 billion as of year-end 2020.
- Since March 2020, the majority of SitusAMC's employees have been successfully working remotely due to the COVID-19 pandemic.
The outlook on each ranking is stable. Since our last review, Situs has embarked on an aggressive growth strategy, which included the acquisition of the legacy Cohen portfolios and the transfer of a sizable amount of CMBS special servicing assignments. As of Dec. 31, 2020, the primary servicing portfolio contained 9,323 loans with a combined UPB of $131.3 billion. The special servicing portfolio contained 108 nonperforming and subperforming commercial loans, as well as four REO properties with a UPB of $2.8 billion. At the time of our last review, the primary servicing portfolio contained 1,781 loans with a UPB of $48.5 million, and the special servicing portfolio contained 24 nonperforming and subperforming commercial loans as well as five REO properties with a combined UPB of $174.1 million.
Situs has brought seasoned leadership on board to handle the growth as the company continues to enhance and update its processes, invest in technology, and maintain solid controls. At the time of our review, Situs was running two separate Enterprise! servicing systems, with the Cohen loans on one system and the legacy Situs loans on another. Management expects these two systems to merge onto a single new release of Enterprise! by year-end 2021. Although we note that operational challenges could arise with merging both loan portfolios onto a single system, we also believe, given the strength of the new leadership team, that this will be accomplished with limited issues.
In addition to conducting a remote 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
Servicer Profile | ||||
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Servicer name | Situs Asset Management LLC and Situs Holdings LLC. | |||
Primary servicing location | Houston, Texas and San Francisco, Calif. | |||
Parent holding company | SitusAMC Holdings Corp. | |||
Loan servicing system(i) | Enterprise!® v2015.3.MR4. | |||
(i)Cohen loans originally housed on Enterprise!® 2015.3.MR3. |
Founded in 1985, Situs is based in Houston, with additional servicing locations in Atlanta, Ga., Leawood, Kan., Robbins N.C., Plymouth Pa., and San Francisco, Calif. SitusAMC is strictly a fee-for-service provider and offers a customer-focused business model. SitusAMC and its subsidiaries provide services for commercial and residential real estate transactions, including advisory services, loan servicing, single-family rentals, risk management, consulting and staffing, valuation management, and business process outsourcing. In total, SitusAMC employs over 5,500 professionals globally.
SitusAMC ownership group includes private equity funds managed by Stone Point (49.28%), as well as 34.97% ownership by Port Aux Choix, with the balance owned primarily by current and former employees. Stone Point, based in Greenwich, Conn., is a private equity firm focused on financial services and asset management. It manages eight private equity funds with aggregate committed capital of more than $26 billion. Port Aux Choix is a wholly owned subsidiary of Public Sector Pension Investment Board, a Canadian pension fund with C$170 billion in assets under management.
SAM provides primary servicing along with performing loan asset management, surveillance, valuation, and due diligence, as well as equity asset management services for U.S. commercial real estate (CRE) loans. As of Dec. 31, 2020, the company's primary servicing portfolio contained 9,323 loans with a combined UPB of $131.3 billion, which increased significantly during the year due, in part, to the addition of the Cohen loans as previously noted (see table 1).
SH provides special servicing and distressed asset management to CMBS and CLO trusts, as well as institutional and entrepreneurial investors. As of Dec. 31, 2020, SH's active portfolio included 108 nonperforming and subperforming CRE loans as well as four REO properties totaling $2.8 billion in UPB (see table 2). SH is the named special servicer on 192 deals totaling $58.5 billion in UPB, which include an aggregate of nearly 4,000 loans.
Table 1
Total Servicing Portfolio | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
UPB (mil. $) | YOY change (%) | No. of assets | YOY change (%) | No. of staff | YOY change (%) | |||||||||
Primary servicing | ||||||||||||||
Dec. 31, 2020 | 131,296.5 | 50.2 | 9,323 | 179.4 | 241 | 134.0 | ||||||||
Dec. 31, 2019 | 87,430.0 | 54.4 | 3,337 | 38.3 | 103 | 53.7 | ||||||||
Dec. 31, 2018 | 56,643.9 | 22.1 | 2,412 | 55.5 | 67 | 17.5 | ||||||||
Dec. 31, 2017 | 46,381.5 | 28.6 | 1,551 | 16.8 | 57 | 7.5 | ||||||||
Dec. 31, 2016 | 36,078.0 | -- | 1,328 | -- | 53 | -- | ||||||||
Special servicing | ||||||||||||||
Dec. 31, 2020 | 2,821.2 | 6234.5 | 112 | 239.4 | 18 | 157.1 | ||||||||
Dec. 31, 2019 | 44.5 | (70.9) | 33 | 13.8 | 7 | 0.0 | ||||||||
Dec. 31, 2018 | 153.3 | (31.2) | 29 | (17.1) | 7 | (22.2) | ||||||||
Dec. 31, 2017 | 222.8 | 17.7 | 35 | (18.6) | 9 | (10.0) | ||||||||
Dec. 31, 2016 | 189.3 | -- | 43 | -- | 10 | -- | ||||||||
YOY--Year-over-year. UPB--Unpaid principal balance. |
Table 2
Portfolio Overview | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | ||||||||||||||||||
UPB (mil. $) | No. | UPB (mil. $) | No. | UPB (mil. $) | No. | UPB (mil. $) | No. | UPB (mil. $) | No. | |||||||||||||
Primary loans | 131,296.5 | 9,323 | 87,430.0 | 3,337 | 56,643.9 | 2,412 | 46,381.5 | 1,551 | 36,078.0 | 1,328 | ||||||||||||
Average loan size | 14.1 | -- | 26.2 | -- | 23.5 | -- | 29.9 | -- | 27.2 | -- | ||||||||||||
Special servicing | ||||||||||||||||||||||
Loans | 2,800.4 | 108 | 42.1 | 31 | 149.2 | 25 | 174.0 | 29 | 130.9 | 31 | ||||||||||||
REO properties | 20.8 | 4 | 2.5 | 2 | 4.1 | 4 | 48.7 | 6 | 58.4 | 12 | ||||||||||||
Total special servicing | 2,821.2 | 112 | 44.5 | 33 | 153.3 | 29 | 222.8 | 35 | 189.3 | 43 | ||||||||||||
Amounts are rounded. REO--Real estate owned. UPB--Unpaid principal balance. |
Management And Organization
The management and organization subrankings are ABOVE AVERAGE for primary and special servicing.
Organizational structure, staff, and turnover
Situs management reports up to a New York-based executive managing director (EMD) who reports to the SAM CEO. Under this EMD are two managing directors (MDs) who are both based in Leawood, Kan., and provide oversight for the following:
- MD--head of client delivery, servicing, asset management and special servicing; overseeing primary servicing, systems and IT, operations, special servicing, and portfolio management.
- MD--head of client relationship management, business development, and compliance.
Both above mentioned MD's have various directors and vice presidents that oversee the staff.
As of Dec. 31, 2020, the primary servicing group had a total of 241 employees, and the special servicing group had 18 employees, including 14 special servicing asset managers. These asset managers handle both distressed loans and REO assets, which, at the current level, equates to an average workload of eight specially serviced assets per asset manager, which we believe offers sufficient capacity to handle portfolio growth. Management stated the depth of the Situs platform allows them flexibility to adjust staffing levels when necessary.
When compared to peers, SAM's management team and staff exhibit the same levels of industry experience but significantly lower tenure with the company (see table 3). This was expected, as several individuals with extensive experience recently filled leadership roles with the company. SH staff tenure levels are superior in length both within the company and in the industry when compared to their peers. The SH senior and middle management company tenure is less than peers, with their industry experience exceeding peers. Staffing levels have fluctuated considerably in the past few years due to overall changes in business volumes.
Both SAM and SH had various senior-level corporate departures in early 2020, with several of those positions being filled with external candidates. Overall turnover levels are generally in line with peers for primary servicing but are higher in the special servicing groups. However, we believe the recent hires provide new perspectives and varied experience to an already seasoned group.
As noted above, Situs is headquartered in Houston, with additional offices in Atlanta; Leawood, Kan.; San Francisco; Plymouth Meeting, Pa.; and Robbins, N.C. The Houston staff provide asset and portfolio management, compliance, and IT services. Atlanta, Plymouth Meeting, and Leawood staff perform asset and portfolio management. The San Francisco office personnel handle special servicing functions, while the Robbins and Leawood offices handle back-office operations, such as escrow administration and other support functions. SitusAMC's New York City office provides corporate functions such as accounting, human resources, legal, and training.
We believe the overall corporate organizational structure provides appropriate oversight and accountability to support Situs' servicing duties and requirements.
Table 3
Years Of Industry Experience/Company Tenure(i) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Senior managers | Middle managers | Asset managers | Staff | |||||||||||||||
Industry experience | Company tenure | Industry experience | Company tenure | Industry experience | Company tenure | Industry experience | Company tenure | |||||||||||
Primary | 23 | 6 | 18 | 4 | N/A | N/A | 9 | 3 | ||||||||||
Special | 32 | 4 | 28 | 7 | 29 | 4 | 24 | 10 | ||||||||||
(i)As of Dec. 31, 2020. |
Training
The company provides management and staff with a diversified array of on-the-job and ongoing formal training programs (both in the classroom and online), which is typical of similarly sized peers.
Situs University is a corporate-wide, formal training program for all new employees, with the goal of graduating from the university. The comprehensive training curriculum consists of technical, compliance, and professional development, and includes many aspects of real estate analysis, asset management, underwriting, and investment servicing across various property types and loan structures. Additional training features include the following:
- The legal and compliance department works with the human resources department to identify required compliance courses and other elective courses to offer employees.
- The company has dedicated full-time training personnel and training hours are tracked in the ABSORB LMS learning portal.
- The company targets 30 training hours per employee annually, but we note that this goal is at the low end of the range of our similarly ranked commercial mortgage servicers. During 2020, primary servicing employees averaged 29 hours and special servicing employees averaged 26. Management indicated that, in addition to the 30-hour goal of tracked training, individuals also receive on-the-job training as needed.
- All new employees (including those who recently joined from Cohen) receive training on systems, compliance, and policies and procedures (P&Ps) within the first week of hire. Subsequently, a senior-level employee shadows the employee on day-to-day processes.
- Employees are encouraged to participate in various conferences and training sessions offered through the Mortgage Bankers Assoc., Commercial Real Estate Financial Council (CREFC), and other industry groups.
- The company continues to cross train staff for deployment to other departments as the need arises.
- The training and development committee, including representatives from each business unit within Situs, works with the EMD and the global head of training and quality control to evaluate current courses and assess needs.
- A mentoring program pairs middle management with company executives to help managers gain insight into various business units, as well as develop specific job and leadership skills. Management reports the program, which has been in effect for five years, was put on hold in 2020 due to the COVID-19 pandemic but is expected to restart later in 2021.
Systems and technology
We believe Situs has effective technology to meet its primary and special servicing requirements. The company continues to focus on technology enhancement projects to further streamline and automate servicing tasks across various loan administration functions. They have well-designed data backup routines and disaster recovery preparedness.
Systems and applications
Situs uses various systems to run its asset management and special servicing platforms. Features include the following:
- SitusAMC utilizes the Enterprise! version 2015.3.MR4 system in a secure hosted environment. Enterprise! supports servicing, asset management, and reporting for a variety of collateral and investor types.
- Because the Cohen loans were housed on an older version of Enterprise! (version 2015.3MR3), they could not be electronically transferred to the upgraded version Situs uses (2015.3MR4), as the data points would not match. This has since been corrected, and Situs is now working with Midland Loan Services (MLS) to house all the loans together on a further enhanced version, which could roll out in August 2021 and allow all loans to be on the same system version by the end of 2021.
- Management Information Data Analysis System (MIDAS) is a web-based proprietary system for collateral management, disposition, and special servicing. MIDAS provides electronic centralized data management and reporting that stratifies the requirements of the specially serviced portfolio and clients. This includes integrated business plans and cash flow modeling; REO asset, bank account, and property manager tracking; and ticklers and management reports.
- AMS, a cloud-based system, provides asset management workflow and data management (including models for cash flow forecasting, asset reviews, and covenant and milestone tracking) and is used as a client portal.
- VMS (Valuation Management System) is the system of record for appraisal and valuation services, reporting capabilities, data workflows, and data warehouse and invoice tracking. The system was developed in-house and is hosted by SitusAMC or on a client site. The next phase of VMS will update technologies and leverage a cloud hosting model to be completed by year-end 2021.
- CLOSER, hosted in the Microsoft.net framework, is a system for CRE loan origination and asset management software. SitusAMC recently acquired CJC Technologies, which added CLOSER to their technology solutions. The system provides a loan tracking and reporting pipeline as well as a loan submission module, and is used for data management across underwriting, due diligence, asset management, and critical disposition data sets.
- Clarity, Clarity Portal, and Clarity API are a loan file review technology package used for compliance, credit, valuation, modifications, collection comments, payment histories, title search and diligence, and quality control for both origination and servicing. Clarity is connected to third-party systems and delivers data and automates portions of the review process. The Clarity Portal provides access to deal progress, exceptions, and exception remediation. Clarity API allows for data to be pushed or pulled into client systems of record.
- MS Dynamics software is the accounting system for foreclosed or investment real estate.
- SET (Situs Extraction Technology) is an optical character recognition (OCR) and machine-learning application used to extract data from CRE documents (i.e., rent rolls and operating statements) to CREFC standards. It was developed and is hosted in-house. The system is used in the Commercial Advisory unit, with final testing near completion for use in servicing and asset management groups.
- Atlas is the internal intranet site that is available to all employees. Final policies (including exhibits, templates, and forms) are saved as PDF read-only documents on this site.
- Acuity/DocAcuity is the management software and services system for document capture and automated indexing. This system was developed and is hosted in-house.
- Robotics Process Automation (RPA) is utilized via BluePrism to perform numerous repetitive tasks for primary servicing, including handling tax and insurance information.
Business continuity and disaster recovery
SitusAMC takes a layered approach to data and system security for both internal computing and external remote access. Highlights include the following:
- Data is stored in a colocation facility with biometric screening access; servers are caged separately within the data center. Data centers, which are located in Houston and Austin, are staffed and monitored 24/7, and can tunnel into a London data center if the need arises.
- The company maintains comprehensive disaster recovery and business continuity procedures and targets resumption of all processing and systems within 24 hours after an event.
- Disaster recovery systems are tested annually, with the most recent internal test conducted in August 2020 with no material issues reported. In addition, no material issues were identified in the systems recovery testing with its Enterprise! system provider in June 2020.
- Hardware refresh cycles are monitored to maintain peak efficiency and uptime reliability.
- Business recovery sites are greater than 25 miles from the main servicing location and is on a separate power grid. Aside from the main data centers mentioned above, backup centers are located in Denver and Allentown, Pa., providing sufficient distances and different power station usage for the multiple office locations.
- The company maintains a disaster recovery and business continuity plan, including response procedures to address operational disruption as a result of a pandemic event. The plan was implemented in March 2020 due to the COVID-19 pandemic. Management reported that there were no disruptions to the company's operations or data facilities, and most staff have been successfully working from home. A limited number of people have been in the office as the need arises.
Cybersecurity
Management indicated that it proactively tests for cybersecurity threats. Protocols include the following:
- A formal written cybersecurity protection plan is included as part of their corporate liability insurance.
- Penetration testing is performed annually by a rotating third-party vendor. The test was last completed in July 2020, with no significant issues.
- Phishing emails are sent semiannually to employees to test employee awareness.
- The company maintains a separate cybersecurity insurance policy.
Internal controls
We believe the risk management efforts, including its system of controls and governance processes, demonstrate a comprehensive and sound approach to maintaining a controlled servicing environment. Details are described below.
Policies and procedures
We believe the P&Ps for the servicing functions are detailed and well-written. Additionally:
- P&Ps are available to all employees on their Atlas intranet site, as well as in a designated folder on the shared network drive. This allows for distribution of updates and history tracking, as well as creating approval workflows.
- The company reviews policies annually, or as needed, to accommodate legal, regulatory, system, or procedural changes.
- Dedicated staff members manage the change process, and senior management and compliance must approve all proposed changes prior to implementation.
Compliance and quality control
Situs maintains quality control reporting that involves issuing and monitoring management reports. The reports are issued on a daily, monthly, or quarterly basis and cover key servicing processes such as new loan setup, insurance and tax monitoring, delinquencies, and financial statement and rent roll collection and analysis.
SAM and SH each have dedicated compliance officers who report to the senior vice president business development and compliance with dotted line reporting to the director of international risk management and compliance. SitusAMC maintains a compliance and risk management framework that includes oversight by the Operational Risk Management Group (ORM), the Legal and Compliance Department (LCD), and IT Security Compliance.
The ORM is primarily responsible for internal compliance and risk management oversight for SitusAMC. ORM also provides assurance to senior management at SitusAMC, SAM, and SH as to the quality of the company's operational risk management processes by identifying, assessing, and preventing risk resulting from inadequate or failed internal processes, people, and systems, or from external events.
The LCD reports directly to SitusAMC's general counsel and is responsible for monitoring risks linked to failure to comply with industry laws, regulations, rules, related self-regulatory organization standards, and codes of conduct applicable to company activities and P&Ps.
IT Security is headed by SitusAMC's CIO and is responsible for oversight of an overall comprehensive, standards-based IT security program. SitusAMC believes this is critical to ensure all work products meet its quality standards.
Additionally, Situs has standing committees providing quality control for the following:
- Force-Placed Insurance Review Committee – Comprising members of the primary servicing management team who are responsible for managing and deciding on insurance exceptions. They meet monthly to discuss plans, resolutions, and risk mitigation for those loans. Recommended actions are approved by a majority of members and ultimately approved by the lender.
- Reconciliation Review Committee – Comprising members of the primary servicing operations management team and primary servicing compliance officer. The committee reviews and approves all month-end reconciliations; meetings are held monthly or as necessary.
- Servicing Management Team – Comprising members of primary and special servicing senior management; meeting are held weekly. The team monitors the performance of servicing operations and opens communication between primary and special servicing. They also focus on process improvements and help streamline operations, ensuring all work products meet SitusAMC's quality standards.
Internal and external audits
Internal audit results are reported by management directly to the SitusAMC board, and senior managers from the respective process areas are tasked with follow-up and resolution of audit findings and recommendations. Management obtains the report from their third party, checks for completeness, and remits to the board. Management is unable to make any changes to the audit report. The internal controls and compliance framework appear to be effective according to the independent audit firm. Features of the audit function include the following:
- An annual internal audit is outsourced and is conducted by a third-party audit firm. Per management, the audit covers only special servicing. The firm reviews P&Ps and audits cash receipts and wire transfers, bank account reconciliations, bank accounts, onboarding loans, forbearance, modification, and restructure activity effectiveness.
- The most recent special servicing internal audit report, dated May 2020, covered 2019 and contained no material findings. Primary servicing is currently not covered by an internal audit. Although is it somewhat unusual to have the internal audit cover only one portion of the business, that risk is mitigated by the Statement on Standards for Attestation Engagements (SSAE) 18 report.
- An annual audit for the SSAE 18 Service Organization Control 1 (SOC1) are completed for primary servicing.
- Regulation AB audits are conducted for both the primary and special servicing operations annually. There were no material exceptions noted for either of these audits for year-end 2020.
- Situs is subject to periodic reviews and audits from clients, including mortgage lenders, GSEs, and investors.
- Situs uses a third-party firm to provide an annual SOC2 audit report regarding the suitability of the design of Situs' controls to meet the criteria for the security, availability, and confidentially principles of its technology platforms. The most recent SOC2 audit for 2020 reported no exceptions.
- During 2020, SitusAMC began an initiative where each business unit performs a formal assessment of its activities to identify potential risks, and determine if controls currently in place are effective to mitigate those risks. Management indicated that any issues identified have been addressed, and additional controls have been instituted.
Vendor management
SitusAMC maintains a corporate-wide vendor management process to identify, manage, and oversee vendor relationships. Key points include the following:
- The company has agreed upon service level agreements with its vendors that outline expectations, accountability, and management protocols.
- The overall quality and performance of each vendor is reviewed quarterly by management, with feedback from the team, to determine whether the vendor will continue to be utilized. If a vendor is not meeting expectations, they are replaced. Vendor compliance and performance data are tracked through SharePoint.
- In addition to contract specifics, all vendor contracts must contain language regarding IT security measures, which the SitusAMC IT group reviews for risk and compliance.
- The legal and compliance department conducts overall reviews of vendor contracts and maintains the vendor list.
Insurance and legal proceedings
Situs has represented 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, management represented that there were no material servicing-related pending litigation items.
Loan Administration–Primary Servicing
The loan administration subranking is ABOVE AVERAGE for primary servicing.
As of Dec. 31, 2020, SAM primary serviced a portfolio of 9,323 loans with a total UPB of $131.3 billion, an increase of 170.7% from our last review as of June 30, 2018; the growth was due in large part to the addition of the Cohen loans in September 2020. At the same time, the average loan size decreased to $14.1 million at year-end 2020 from $26.2 million at year-end 2019, primarily due to Cohen's smaller average loan size.
As of Dec. 31, 2020, the company reported a 5.4% delinquency rate, down from 5.7% as of Dec. 31, 2019. Both are slightly higher than the 4.8% reported at year-end 2018; however, we do not expect see this delinquency rate to be an issue (see table 4).
The portfolio is geographically diverse, with loans in every state. It has a property-to-loan ratio of 3.34, and consists of 31,131 properties, collateralized by 9,323 loans. The portfolio contains a diversified mix of assets, with an emphasis on office (32.5% of UPB), multifamily (18.5% of UPB), lodging (13.4% of UPB) and mixed use (10.3% of UPB)(see table 5).
Investor diversity is somewhat concentrated among third-party investors (primarily private equity; 48.7% of UPB) and banks and financial institutions (31.3% of UPB) (see table 6).
CMBS loans make up 28.7% of the portfolio (6.4% of UPB), with the average loan size being just $3.1 million. This is primarily due to Situs' single-family rental (SFR) portfolios, which skews the data, as SFRs represents only 2.2% in UPB, but by property count they represent 39.3% of the portfolio.
Table 4
Primary Servicing Portfolio | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | ||||||||||||||||||
UPB (mil. $) | No. | UPB (mil. $) | No. | UPB (mil. $) | No. | UPB (mil. $) | No. | UPB (mil. $) | No. | |||||||||||||
Primary loans | 131,296.5 | 9,323 | 87,430.0 | 3,337 | 56,643.9 | 2,412 | 46,381.5 | 1,551 | 36,078.0 | 1,328 | ||||||||||||
Average loan size | 14.1 | -- | 26.2 | -- | 23.5 | -- | 29.9 | -- | 27.2 | -- | ||||||||||||
Delinquent (%) | ||||||||||||||||||||||
30 days | 0.6 | -- | 1.5 | -- | 0.9 | -- | 3.0 | -- | 0.3 | -- | ||||||||||||
60 days | 0.3 | -- | 0.9 | -- | 1.5 | -- | 0.6 | -- | 0.2 | -- | ||||||||||||
90+ days | 4.5 | -- | 3.3 | -- | 2.4 | -- | 0.9 | -- | 1.7 | -- | ||||||||||||
Total | 5.4 | -- | 5.7 | -- | 4.8 | -- | 4.5 | -- | 2.3 | -- | ||||||||||||
Amounts are rounded. UPB--Unpaid principal balance. |
Table 5
Primary Portfolio Breakdown By Property Type And State(i) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
UPB (mil. $) | UPB (%) | No. of properties | Properties (%) | |||||||
Type | ||||||||||
Office | 42,686.0 | 32.5 | 2,615 | 8.4 | ||||||
Multifamily | 24,307.6 | 18.5 | 4,172 | 13.4 | ||||||
Lodging | 17,642.2 | 13.4 | 1,709 | 5.5 | ||||||
Mixed use | 13,519.8 | 10.3 | 1,368 | 4.4 | ||||||
Retail | 9,085.1 | 6.9 | 1,246 | 4.0 | ||||||
Single-family rentals | 2,823.8 | 2.2 | 12,239 | 39.3 | ||||||
All other | 21,231.9 | 16.2 | 7,782 | 25.0 | ||||||
Total | 131,296.5 | 100.0 | 31,131 | 100.0 | ||||||
State | ||||||||||
California | 24,746.8 | 18.8 | 4,838 | 15.5 | ||||||
New York | 23,814.6 | 18.1 | 1,618 | 5.2 | ||||||
Florida | 7,972.0 | 6.1 | 4,395 | 14.1 | ||||||
Illinois | 6,464.0 | 4.9 | 1,426 | 4.6 | ||||||
Texas | 6,441.5 | 4.9 | 2,335 | 7.5 | ||||||
All other | 61,857.5 | 47.1 | 16,519 | 53.1 | ||||||
Total | 131,296.5 | 100.0 | 31,131 | 100.0 | ||||||
Amounts are rounded. (i)As of Dec. 31, 2020. UPB--Unpaid principal balance. |
Table 6
Primary Portfolio By Investor Product Type(i) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Loan Type | UPB (mil. $) | Loan count | UPB (%) | Loan (%) | ||||||
Other third-party Investors | 63,935.1 | 5,036 | 48.7 | 54.0 | ||||||
Banks/financial institutions | 41,139.4 | 910 | 31.3 | 9.8 | ||||||
Life insurance companies | 12,191.9 | 466 | 9.3 | 5.0 | ||||||
CMBS | 8,418.4 | 2,680 | 6.4 | 28.7 | ||||||
Contained in a CRE CDO/CRE CLO | 5,057.4 | 188 | 3.9 | 2.0 | ||||||
Pension funds | 554.4 | 43 | 0.4 | 0.5 | ||||||
Total | 131,296.5 | 9,323 | 100.0 | 100.0 | ||||||
Amounts are rounded. (i)As of Dec. 31, 2020. UPB--Unpaid principal balance. CMBS--Commercial mortgage-backed securities. CRE--Commercial real estate. CDO--Collateralized debt obligations. CLO--Collateralized loan obligations. ABS--Asset-backed securities. |
New loan boarding
Based upon its stated practices and written procedures, SAM has an effective loan setup function that includes the following:
- New business pipeline calls, based on closing committee summaries, foster communication about new loans and their specific complexities. The calls include representatives from loan administration, asset/portfolio management, and operations.
- Most new loan setup activity occurs via electronic downloads from acquired servicing transfers or from other third-party servicing systems; others may be boarded manually. The setup function includes loan document verifications against what is set up in the system.
- Main data points are uploaded into the system within five days post-closing for individual loan closings. New portfolio acquisitions are boarded onto the system within two weeks of acquisition closing.
- Loan files are reviewed for missing/incomplete documents or defects. If that occurs, the loan administrator notifies the asset manager, who in turn contacts the investor/lender to advise of issues and request corrective action. Loan document deficiencies are tracked via a SharePoint workflow.
- A loan boarding setup package is completed for each loan and the loan is boarded onto Enterprise! The loan administrator manager performs a final quality control review before the loan record is moved into production.
- An asset manager provides a final quality control review of the loan, which includes validation of the first billing statement and documentation of the workflow.
- In 2020, the company boarded 2,003 new loans into the Enterprise! System, excluding the Cohen loan portfolio, which used an older Enterprise! version. Management plans for both groups of loans to be on the same upgraded Enterprise version by year-end 2021.
- Borrower welcome letters are produced manually and issued within three days of loan closing.
- The loan file is inventoried, and trailing documents are tracked in the Atlas workflow application.
- As of Dec. 31, 2020, management reported that 3% of documents remain outstanding after six months, which is somewhat higher than other servicers.
- The escrow (tax and insurance) and asset management departments also perform file reviews within 60 days of new loan boarding to ensure data accuracy.
- Expiration dates for letters of credit (LOCs) are tracked in the tickler function of Enterprise! This system automatically prompts the asset manager upon pending LOC expiration.
Payment processing
SAM's practices and integrated technology tools efficiently address payment processing, cash-management, and other complex loan structures with proper segregation of duties. Highlights of payment processing include the following:
- The electronic payment capture rate is 100%, including wire transfers (60%), lockbox (25%), and Automated Clearing House (15%).
- Asset managers monitor the loan system to review the proper application of cash for loans with cash management agreements.
- Bank accounts are reconciled daily through Enterprise! and a monthly recap is prepared for sign-off by the cash manager, who also performs a review of the system-generated reconciliations.
- Bank activity is kept electronically on a dedicated SharePoint page to allow timely access to the bank information and to help facilitate clearing outstanding items.
- Custodial bank reconciliations are completed automatically through Enterprise! for most bank accounts (based on investors); an exception report of unmatched transactions is generated, and servicing analysts research the discrepancies.
- The portfolio contains 527 cash-managed (hard lockbox) loans, which are managed through Enterprise!
- SAM handles 4,210 adjustable-rate loans. The loan administration group inputs rates into the system and performs quality control reviews of daily rate uploads. Adjustable rates are also audited in connection with SAM's internal and SOC audits.
- The treasury services team reconciles payment clearing activity daily. As of Dec. 31, 2020, there were no items in suspense greater than 60 days.
- Enterprise! is interfaced with the online bank system for automatic funds transfers among clearing, custodial, and corporate fee accounts with proper controls over the daily reconciliation.
Investor reporting
SitusAMC is highly experienced with customized third-party reporting requirements. The company has dedicated staff members for the various investor reporting and operational accounting activities, which are adequately segregated for reporting, remitting, and related account reconciliation processes. Other highlights include the following:
- Investor accounts are reconciled daily in Enterprise!, and system-generated reports are provided for the investor reporting group. A shared remittance calendar and workflow is maintained in Atlas for investor reporting to facilitate timely publication of lender reports.
- The investor-reporting specialist prepares the reports, which the assigned portfolio manager reviews and approves before release to the investor.
- Situs recently established a process to receive same-day new cash reporting from their bank to increase reporting efficiencies.
- The internal review and approval of outgoing wire information is tracked in Atlas. The final review and actual release of funds are controlled by SitusAMC's corporate accounting department.
- Formatted templates within the online bank wire system are utilized for repetitive wires. Report templates are also used for remittances based on system reports, which are approved by individual portfolio managers.
- The treasury services team reconciles the investor custodial accounts monthly. These account reconciliations are then reviewed by the reconciliation review committee, which consists of servicing operation management and the primary servicing compliance officer.
- Depending on the investor portfolio, certain loan activity, such as cash-managed loans and sales of construction or bridge loan units, requires more frequent remittances than monthly. As such, additional procedures and automated tracking systems are in place to handle these.
- As required, Enterprise! provides CREFC reporting formats with respect to CMBS advancing, pool-to-security reconciliations, and trustee CMBS reporting.
- The servicer experienced no penalties for late reporting or remitting as a primary servicer since our last review.
Escrow administration
The company has effective controls for escrow administration activities. Situs 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:
- The Enterprise! system tracks taxes and insurance. Loans escrowed for taxes and insurance comprised approximately 37% and 30% of the portfolio, respectively.
- The servicer reported three loans with minimal non-reimbursable tax penalties paid for the last half of 2020. Tax penalties were a result of taxes due at transfer and/or incorrect tax parcel numbers given at transfer.
- A tax service is used for escrowed and non-escrowed loans. Tax amount and tax payment verification reports are received monthly from the tax vendor and imported into Enterprise! for monitoring.
- The company obtains paid tax receipts from taxing authorities for non-escrowed loans 60 days after the due date and follows up with calls if not paid.
- Renewal notices for insurance policies are system-generated and sent 30 days prior to expiration; the servicing system automatically generates borrower letters on non-escrowed tax accounts to verify payment.
- The insurance team runs and reviews upcoming insurance expiration reports and provides the reports monthly to the assigned asset managers. Asset managers contact borrowers directly in the event of an insurance cancellation or unpaid premium.
- A forced-placed policy, which provides for a 90-day look-back period, is in effect; 216 loans are covered by this policy as of the reporting period. We do not believe this is a concern given the increased portfolio size.
- Insurance coverage amounts and carrier ratings are formally analyzed annually when policies are renewed. Binders and Association for Cooperative Operations Research and Development (ACORD) forms are accepted in lieu of the actual policies (unless the loan documents or servicing agreements specifically require insurance policies).
Asset and portfolio administration
SAM has extensive procedures covering asset and portfolio administration tasks, with dedicated staff supporting the area. Other notable features include the following:
- Inspections are conducted based on investor requirements. Inspection due dates are tracked using the tickler module in Enterprise! Inspections are mainly outsourced to approved vendors and are submitted electronically to clients/investors per servicing agreements. Some inspection delays occurred due to COVID-19 restrictions, with most investors allowing flexibility of their inspection requirements.
- Inspections typically follow the CREFC/Mortgage Bankers Assn. standard format, depending on investor requirements. Completed inspection reports are reviewed by the portfolio manager for completeness and compliance.
- Deferred maintenance (DM) and DM notices are centrally tracked in Enterprise! and issued to borrowers within 30 days and escalated after 60 days if not addressed. Significant inspection issues automatically trigger watchlist inclusion and are tracked until completion.
- Asset/portfolio managers update the watchlist and develop action plans approved by the investor.
- Monthly conference calls regarding watchlist loans are held with portfolio managers, investors, and third-party master and special servicers.
- Situs received and analyzed 97% of the CMBS property financial statements, with 97% of the previous year's CMBS operating statements being collected as of the last reporting period.
- Analysts with the AM operations team (leveraging their shared services team) input the information from financial statements and normalize them using various templates based on investor requirements, which are subsequently reviewed by the lead asset manager assigned to the loan or portfolio.
- Noncompliance issues are flagged for inclusion on the investor and company watchlist.
- The portfolio or asset management group administers loan-level covenant and deal compliance.
- Asset managers monitor upcoming loan maturities and send multiple notices to borrowers, depending on investor requirements, but generally at least six months, 90 days, and 30 days prior to loan maturity.
- The loan servicing operations group monitors Uniform Commercial Code (UCC) renewals. Situs works with a vendor who automatically files continuations five months before expiration.
- System reports are produced weekly to track upcoming UCC continuation dates and completed continuations. Monthly reports are also generated to monitor/validate renewals, terminations, and missing records. For the six-month period ending Dec. 31, 2020, the portfolio had 3,985 filings with no lapses reported.
- Key dates and events impacting changes to the terms of a reserve are tracked in the servicing system. Reserve requests and releases, which require managerial approval, are tracked from submission to completion using an Atlas workflow.
- Watchlists are reviewed monthly and any potential transfers are discussed with the master servicer.
Borrower requests
SAM addresses borrower requests in a well-controlled manner. Highlights include the following:
- Asset managers process all borrower consent requests and track them in Enterprise! Situs reported that it processed 321 consent requests during 2020, including those pertaining to approvals for leasing consents (76), forbearances (69), maturity extensions (25), and various other matters (151).
- As a third-party servicer, Situs typically does not have approval rights for borrower requests and these requests are delivered to the client for review and approval. Although, SAM does not have approval rights, borrower request status and the client approvals are monitored internally utilizing a SharePoint workflow.
Early-stage collections
The asset management group administers early-stage collections in their dealings with the borrower. Noteworthy features include the following:
- The staff contacts borrowers by phone the day after the grace period expires and in writing five days after a missed payment due date, with a second written notice 10 days after the due date if needed. The system maintains a centralized chronology of all collection comments.
- In addition to the formal notices, the system-generated billing statements include late charges and any unpaid portion of prior installments.
Loan Administration – Special Servicing
The loan administration subranking is ABOVE AVERAGE for special servicing.
SH has built a track record of successfully managing and disposing of troubled assets nationwide, while handling complex assets collateralized by multiple property types. Additionally, the company has recently executed a master services agreement with one of the GSEs to help provide loss mitigation and REO management services for their portfolio.
Special servicing is managed from San Francisco and a remote office, co-headed by two senior directors with extensive CRE special servicing backgrounds. In the San Francisco office, the senior director has been with the company over 11 years. In June 2020, the company hired another senior director with extensive industry experience. Both directors report to a MD in the Kansas City location.
SH reported 18 full-time employees, of which 14 are dedicated loan workout/REO asset management personnel. This is an increase from seven employees at the beginning of 2020, which was necessitated by the increase in overall volume resulting from the COVID-19 pandemic. The company can also leverage staff members with special servicing experience if the need arises. Given the size of the current REO portfolio (only four assets), loan asset managers are responsible for foreclosed properties, as the company does not have a dedicated REO department.
Prior to 2020, the company's active special servicing portfolio was modest in size, with total assets approximating $30-40 billion during the prior four years. However, at year-end 2020, due to economic difficulties resulting from the COVID-19 pandemic, the specially serviced portfolio's UPB increased exponentially to $2.8 billion. The asset count also tripled to 112, further necessitating the aforementioned staffing increase.
Table 7
Special Servicing Portfolio | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | ||||||||||||||||||||||||||||
UPB (mil.$) | No. | Avg. age(i) | UPB (mil.$) | No. | Avg. age(i) | UPB (mil.$) | No. | Avg. age(i) | UPB (mil.$) | No. | Avg. age(i) | UPB (mil.$) | No. | Avg. age(i) | ||||||||||||||||||
Active inventory | ||||||||||||||||||||||||||||||||
Loans | 2,800.4 | 108 | 10.5 | 42.1 | 31 | 12.6 | 149.2 | 25 | 35.4 | 174.0 | 29 | 35.1 | 130.9 | 31 | 40.3 | |||||||||||||||||
Real estate-owned | 20.8 | 4 | 8.8 | 2.5 | 2 | 8.3 | 4.1 | 4 | 61.9 | 48.7 | 6 | 51.8 | 58.4 | 12 | 56.8 | |||||||||||||||||
Total | 2,821.2 | 112 | 10.4 | 44.5 | 33 | 12.3 | 153.3 | 29 | 39.1 | 222.8 | 35 | 38.0 | 189.3 | 43 | 44.9 | |||||||||||||||||
Totals may not add due to rounding. (i)Average age reflects the time in months from the date the loan first became specially serviced to the reporting date. UPB--Unpaid principal balance. |
Loan recovery and foreclosure management
SH displays effective and proactive loan recovery and foreclosure management protocols to efficiently resolve nonperforming loans across a broad spectrum of property types. Highlights include the following:
- During 2020, SH completed 39 resolutions, including 16 loans returned to the master servicer, 10 full payoffs, eight discounted payoffs/note sales and five foreclosed loans (see table 8).
- The special servicing group has a full-time compliance manager who is responsible for ensuring controls are applied consistently throughout special servicing.
- A compliance manager coordinates the transfer of loans into special servicing by monitoring the data integrity of assets boarded directly into MIDAS. This manager also orders the original mortgage file from the custodian.
- Analysts perform initial servicing file audits and review servicing contract abstracts for client requirements and key dates.
- Concurrently, the special servicing asset manager conducts a full file review, handles due diligence, performs a site inspection, and must obtain a pre-negotiation letter with the borrower prior to any loan modification discussions.
- Within 90 days of an asset's transfer, which is somewhat longer than similarly ranked peers, the assigned asset manager prepares an asset business plan to substantiate a recommended action plan based on a net present value cash recovery analysis. These plans address key collateral, borrower, real estate mortgage investment conduit, and other document issues.
- Internal approvals through the investment committee, which includes senior management, for initial business plans, updates, and transaction-specific recommendations are acceptably controlled, and all documents are maintained on a shared drive that is backed up nightly.
- Overall average loan hold time has declined to 10.5 months from 34.9 months since our last review. At the same time, average loan resolution time decreased to 5.5 months from 37.2 months. Management stated the reduction in resolution times was due to working through forbearances, and some SFR deals, which are handled more quickly than a typical special servicing full resolution. We note that we have also seen average resolution times decrease across other ranked servicers due to similar reasons.
Table 8
Total Special Servicing Portfolio--Loan Resolutions | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||||||||||
UPB (mil.$) | No. | Avg. age(i) | UPB (mil.$) | No. | Avg. age(i) | UPB (mil.$) | No. | Avg. age(i) | UPB (mil.$) | No. | Avg. age(i) | UPB (mil.$) | No. | Avg. age(i) | ||||||||||||||||||
Resolutions | ||||||||||||||||||||||||||||||||
Loans | 1,072.0 | 34 | 5.7 | 99.1 | 16 | 35.2 | 49.0 | 8 | 35.8 | 32.4 | 8 | 31.1 | 196.0 | 49 | 34.5 | |||||||||||||||||
Foreclosed loans | 21.9 | 5 | 5.2 | 2.8 | 2 | 4.1 | 0.7 | 1 | 3.9 | 0.8 | 2 | 61.5 | 15.0 | 7 | 27.5 | |||||||||||||||||
Total | 1,093.9 | 39 | 5.6 | 101.9 | 18 | 31.7 | 49.8 | 9 | 32.3 | 33.2 | 10 | 37.2 | 211.0 | 56 | 33.7 | |||||||||||||||||
Resolution breakdown | ||||||||||||||||||||||||||||||||
Returned to master | 1,008.1 | 16 | 5.7 | 28.9 | 2 | 14.5 | -- | -- | -- | 13.1 | 3 | 20.7 | 65.3 | 2 | 10.7 | |||||||||||||||||
Full payoffs | 7.4 | 10 | 6.9 | 27.7 | 7 | 8.3 | 18.3 | 3 | 50.0 | 0.0 | 0 | 0.0 | 16.5 | 15 | 20.8 | |||||||||||||||||
DPO or note sale | 56.5 | 8 | 4.4 | 42.5 | 7 | 68.0 | 30.8 | 5 | 27.3 | 19.3 | 5 | 37.4 | 114.2 | 32 | 42.5 | |||||||||||||||||
Foreclosed loans | 21.9 | 5 | 5.2 | 2.8 | 2 | 4.1 | 0.7 | 1 | 3.9 | 0.8 | 2 | 61.5 | 15.0 | 7 | 27.5 | |||||||||||||||||
Total/average | 1,093.9 | 39 | 5.6 | 101.9 | 18 | 31.7 | 49.8 | 9 | 32.3 | 33.2 | 10 | 37.2 | 211.0 | 56 | 33.7 | |||||||||||||||||
Totals may not add due to rounding. (i)Average age reflects the time in months from the date the loan first became specially serviced to the reporting date. UPB--Unpaid principal balance. DPO--Discounted payoff. |
REO management and dispositions
SH demonstrates proactive REO management and sales oversight. Notable aspects include the following:
- Special servicing asset managers engage property managers and brokers using approved vendor lists and standard contracts.
- Asset managers monitor property managers' adherence to a reporting and compliance procedure manual. REO business plans are due 90 days after conversion to REO, which is a bit lengthier than similarly ranked peers. The approval process for the plan and budget is similar to that used for loan business plans.
- Servicing agreement abstracts are accessible via the MIDAS system, and all action reminders and ticklers generated by MIDAS are reviewed by asset managers and others to monitor due dates.
- All sale bids must be submitted to the appropriate delegated authority for final approval.
- The average REO sales hold time (which includes three properties) has decreased to a multi-year low of 11.3 months during 2020, albeit measured on limited volume (i.e., three small assets with an average market value of approximately $700,000) (see table 9).
- Three small asset sales took place in 2020, with gross proceeds at 96.2% of market value. This is up from the net proceeds of 82.3% market value in 2019, but lagged the 100.3% of value in 2018. In large part, the SH REO portfolio has had limited complexity during the past few years.
Table 9
Total Special Servicing Portfolio--Real Estate-Owned Sales | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||||||||||||||
Amount (mil. $) | No. | Avg. REO hold period (mos.) | Amount (mil. $) | No. | Avg. REO hold period (mos.) | Amount (mil. $) | No. | Avg. REO hold period (mos.) | Amount (mil. $) | No. | Avg. REO hold period (mos.) | Amount (mil. $) | No. | Avg. REO hold period (mos.) | ||||||||||||||||||
Estimated market value | 2.0 | 3 | 11.3 | 2.3 | 4 | 28.9 | 32.5 | 5 | 23.5 | 17.3 | 8 | 17.5 | 34.8 | 9 | 22.7 | |||||||||||||||||
Gross sales proceeds | 2.0 | -- | -- | 1.9 | -- | -- | 32.5 | -- | -- | 18.1 | -- | -- | 32.7 | -- | -- | |||||||||||||||||
Net sales proceeds | 1.8 | -- | -- | 1.8 | -- | -- | 31.1 | -- | -- | 17.4 | -- | -- | 34.7 | -- | -- | |||||||||||||||||
Gross sales proceeds/market value (%) | 96.2 | -- | -- | 82.3 | -- | -- | 100.3 | -- | -- | 104.7 | -- | -- | 93.8 | -- | -- | |||||||||||||||||
Net sales proceeds/market value (%) | 88.0 | -- | -- | 79.3 | -- | -- | 95.8 | -- | -- | 100.6 | -- | -- | 99.5 | -- | -- | |||||||||||||||||
REO--Real estate-owned. |
REO accounting and reporting
Servicer controls and procedures for property-level accounting and oversight are sound. Highlights include the following:
- The MIDAS system provides not only for REO and property manager tracking but also for bank account and reporting information.
- The company uploads the master servicer's loan advance data into MIDAS to closely monitor total advances outstanding against projected resolution amounts. Internal accounting staff is responsible for reconciling the property manager REO bank accounts.
- The special servicing investor reporting manager is responsible for the timely completion and submission of the monthly CREFC special servicer loan file (including REO reporting) to the master servicer, as well as any other required reports.
- The asset manager is responsible for providing status updates in the MIDAS system for assigned assets on a monthly basis, including current projected resolution dates, amounts, and project advances.
- Directors review all asset manager status updates.
- A third-party auditor reviews a sample of property management companies currently under contract to ensure compliance with the property management agreements.
- During second half of 2019, a property management company was audited, which identified that the management company needed to reimburse nominal management fees, and a vendor was paid without having a signed contract. No audits were conducted in 2020 due to the COVID-19 pandemic.
Subcontracting management
SH handles the management and oversight of subcontractors in a controlled and effective manner and follows the following guidelines:
- Property manager and broker selection is controlled through approved vendor lists.
- The vendor list is controlled by the legal and compliance department.
- The compliance manager oversees the vendor contracting process. This ensures that the company uses approved vendors and any revisions to the engagement document are reviewed and either approved by the compliance manager (if minor) or forwarded to the legal department for further review.
- Special servicing vendor engagements do not require senior manager approval, with such approval delegated to the asset managers.
- Vendor engagements are not tracked through the central management system, but rather kept on the subcontracting log to track the status of all pending third-party reports, which are then saved into MIDAS.
- Standard contracts are used for attorneys, appraisers, engineers, property management companies and real estate brokers.
Performing loan surveillance
SH monitors loan portfolios where the company is the appointed special servicer. The special servicing asset management group focuses on identifying problem loans approaching maturity with refinance risk. Responsibilities include the following:
- Special servicing senior management reviews watchlist reports and discusses potential loan transfers with the controlling class representative and master servicer, as needed.
- Borrower consent requests are reviewed to monitor potentially troubled loans.
- Surveillance also includes monthly calls with the master servicer for most conduit deals, and senior directors in special servicing handle the review of single-asset single-borrower deals.
- Loans are reviewed for financial and relevant covenant compliance requirements.
Legal department
The special servicing staff has one in-house legal counsel supporting special servicing functions. SH utilizes an outside law firm as oversight counsel, which engages third-party attorneys for loan workouts and other related real estate matters. Asset managers review and approve legal bills before payment.
Financial Position
The financial position is SUFFICIENT.
Related Research
- Select Servicer List, June 3, 2021
- Servicer Evaluation Spotlight Report™: Environmental, Social, And Governance Factors Have Consistently Powered, Nov. 16, 2020
- Servicer Evaluation Spotlight Report™: U.S. Commercial Mortgage Servicers Preparing For Impact From COVID-19, April 3, 2020
- Servicer Evaluation: Situs Asset Management LLC And Situs Holdings LLC, March 1, 2019
- Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019
This report does not constitute a rating action.
Servicer Analyst: | Marilyn D Cline, Farmers Branch + 1 (972) 367 3339; marilyn.cline@spglobal.com |
Secondary Contact: | Geoffrey C Danek, Centennial + 1 (303) 721 4689; Geoffrey.Danek@spglobal.com |
Analytical Manager, Servicer Evaluations: | Robert J Radziul, New York + 1 (212) 438 1051; robert.radziul@spglobal.com |
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