OVERVIEW
- Headquartered in Miami, Rialto Capital Advisors LLC is the special servicing subsidiary of Rialto Management Group, an integrated investment management and asset management platform.
- We affirmed our overall ABOVE AVERAGE ranking on Rialto Capital Advisors LLC as a commercial mortgage loan special servicer.
- The ranking outlook is positive.
NEW YORK (S&P Global Ratings) Jan. 24, 2023--S&P Global Ratings today affirmed its ABOVE AVERAGE ranking on Rialto Capital Advisors LLC (Rialto) as a commercial mortgage loan special servicer. The ranking outlook is positive.
Our ranking reflects Rialto's:
- Experienced and stable senior management team;
- Sound audit, compliance, and control environment;
- Well-defined and effective borrower request, loan workout, and real estate-owned (REO) procedures and process flows;
- Active participation in the CMBS market as a B-piece buyer (through its affiliate);
- Good leverage of a proprietary special servicing technology system providing strong controls;
- Comprehensive employee training and development; and
- Considerable track record of special servicing defaulted CMBS loans and REO assets.
Since our prior review (see "Servicer Evaluation: Rialto Capital Advisors LLC," published Sept. 23, 2021), the following changes and developments have occurred:
- The unpaid principal balance (UPB) of Rialto's active CMBS portfolio decreased to nearly $7.3 billion (377 assets) as of June 30, 2022, from approximately $9.9 billion (562 assets) as of June 30, 2021, after reaching a peak level of more than $10.8 billion (612 assets) as of Dec. 31, 2020.
- Although Rialto's named CMBS special servicing portfolio increased to 141 transactions (compared with 135 at our last review), the underlying UPB declined to $105.5 billion compared with $109.2 billion.
- Rialto continued strengthening its technology capabilities to include further enhancements to Appian and workflow automation across the platform, including integrating RCAMS with a second major master servicer's nightly data feeds to update cash postings on specially serviced loans, facilitating shadow servicing.
- Rialto reported 26 employee departures (a 26.8% turnover rate) during the 12 months ending on June 30, 2022, while maintaining a flat headcount of 97. According to management, turnover has generally been in the analyst ranks and is not due to industry competition.
- Rialto resolved an aggregate UPB of approximately $3.8 billion across 219 CMBS specially serviced loans, including $2.4 billion (134 loans) that were returned to the master servicer, largely via modification or forbearance agreement, and $636 million (34 loans) that experienced a full payoff, $568 million (33 loans) that were resolved via foreclosure or deed-in-lieu of foreclosure and $218 million that experienced a discounted payoff.
- During Q1 2022, Rialto discontinued the programmatic use of Situs Company, an affiliated entity, which began providing real estate consultants and valuation professionals in 2020 to perform support functions for property appraisals. This relationship was not needed after Rialto's addition of internal processes and technology enhancements, including Collateral360, a centralized appraisal procurement, vendor, and task management platform.
The ranking outlook is positive. The positive ranking outlook reflects Rialto's proven track record working out CMBS loans across a diverse group of property types across the U.S., particularly during the pandemic, as well as its strengthened and seasoned internal control regime. At the same time, while acknowledging the industry has experienced above-historical norm turnover since 2021, Rialto's 2022 year-to-date turnover has, nonetheless, been amongst the highest of the special servicers we rank. Further, special servicing asset managers and staff average experience levels, are in each case, generally below the highest ranked special servicers and Rialto's assets to asset manager workload is amongst the highest we rank. Nonetheless, a ranking upgrade could occur if the company continues performing well and its turnover rates stabilize during 2023, a year when delinquency rates are expected to increase and lead to higher transfer volume.
The financial position is SUFFICIENT.
Related Research
- Select Servicer List , Oct. 13, 2022
- Servicer Category Descriptions Expanded And Revised, Feb. 28, 2022
- Servicer Evaluation: Quantum Servicing Corp., Oct. 7, 2021
- Servicer Evaluation: Rialto Capital Advisors LLC, Sept. 23, 2021
- Servicer Evaluation Spotlight Report: Environmental, Social, And Governance Factors Have Consistently Powered Our Servicer Evaluation Rankings, Nov. 16, 2020
- Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019
Servicer Analyst: | Steven Altman, New York + 1 (212) 438 5042; steven.altman@spglobal.com |
Secondary Contact: | Benjamin Griffis, Englewood + 1 (303) 721 4672; benjamin.griffis@spglobal.com |
Analytical Manager, Servicer Evaluations: | Robert J Radziul, New York + 1 (212) 438 1051; robert.radziul@spglobal.com |
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