Fitch To Special Servicers: Don’t Go Chasing Waterfalls

Recent changes in ownership, management and strategic direction among U.S. commercial mortgage-backed securities (CMBS) special servicers are prompting new investor concerns, according to Fitch Ratings.

Recent events, in particular, have turned the spotlight on the largest CMBS special servicers, LNR Partners (LNR), CW Capital and CIII Asset Management, all which have undergone ownership changes in the past few years, Fitch explains. Additional servicer changes have included staffing, strategies and the expansion of their business lines. These numerous changes, coupled with the influx of loans into special servicing, have given pause to investors, the rating agency says.

"Investors are becoming increasingly skittish over potential conflicts between existing CMBS borrowers and the ownership interest in the special servicers," observes Fitch Managing Director Stephanie Petosa. "Additional issues attracting market attention are fair market valuations and special servicers' expansion into related fee-generating businesses."

Some of the largest special servicers have either acquired or are leveraging in-house expertise to provide services that were previously contracted for, including brokerage services. Fitch says it expects CMBS servicers to protect the interests of all bondholders regardless of its own interests and not be motivated by their ownership interests or advancing affiliated entities.

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