New games are afoot for top players as the field changes

Capita Asset Services: NAMA win builds Irish presence

Capita Asset Services looks set to become a powerhouse in the Irish market, having spent part of last year integrating 120 staff – 100 in Ireland and most of them previously with IBRC – and taking over IBRC offices in Dublin and Belfast. It now has over 250 middle and back-office staff there and competes locally only with Certus, which mainly provides servicing to Bank of Scotland Ireland, part of Lloyds Banking Group.

Europe’s largest independent loan servicer won a mandate to take over the primary servicing of €41bn of NAMA loans from IBRC, adding to its €72bn master servicing role – a process completed by August. “Adding that to our capabilities is a very significant commitment from Capita to this market. We’ve demonstrated that we’re here to stay,” says Capita director Jim O’Leary, who joined from Capmark Europe when Capita took it over in 2009. Capita bought Barclays’ CMBS loan servicing arm in 2011.

The enormity of the NAMA contract involved “a significant investment and upscaling the size of three teams in Dublin, Belfast and London”, O’Leary adds. Now, with critical mass to build on, Capita intends to capitalise on other opportunities, including portfolio sales. “We’re undertaking due diligence with a view to wining servicing of non-performing loan books. Considerable opportunities will come from the Irish market, which has reached a more mature stage. It’s been through years of crisis; portfolios are coming to the market from NAMA, IBRC and potentially Ulster Bank.”

Run by chief executive Robbie Hughes, Capita has €72bn of European loans in servicing, including NAMA loans and 40 CMBS transactions, concentrated in Ireland, the UK and Germany. The servicer has worked through some big restructurings, including Europe’s largest deal: the €4.3bn GRAND German multi-family housing CMBS, which was led by borrower Deutsche Annington. The loan was extended and the bonds restructured, and noteholders have been repaid in full.

Yet as more deals get fixed, servicers’ current role is waning. O’Leary notes: “As we come through this cycle these loans are being resolved, repaid and restructured.” This month, re-priced bonds in the distressed £1.2bn Fleet Street 2 CMBS, secured against 90 Karstadt department stores in Germany, on which Capita is servicer, will be repaid in full.

Capita has worked on three CMBS issues in the past 18 months: RBS’s £463m Isobel, plus two German multi-family housing deals – Gagfah’s €2bn German Residential Funding and Deutsche Bank’s €386m Monnet. But the servicer is savvy in its approach to new lines of business, as a fully functioning CMBS market is some way off. O’Leary says: “Rather than rely on capital markets coming back, we’re diversifying to provide services to loan originators and to partner with them.”

It has won a mandate to provide servicing for a large UK life company scaling up to be a commercial real estate lender. O’Leary says the fact that “we’re not invested in lending” was a key factor in securing the deal. “Investors don’t want to believe competitors are looking at their loans,” he adds. Hatfield Philips, for example, has a potential conflict, as its owner, Starwood Capital, makes loans.

O’Leary says Capita’s success in tendering for a “sensitive government contract”, after undergoing “rigorous assessment” by NAMA, was down to its experience, highest rating level and strength of its FTSE 100 parent company, Capita plc, although rivals also put it down to the firm’s big Irish presence.

CBRE Loan Servicing: Going big on Germany

CBRE Loan Servicing is focusing on Germany in a big way and is close to hiring a head for its Frankfurt office, which opened in October, who will report to CBRELS’ UK-based chief operating officer, Europe, Clarence Dixon.

“We’re going to focus on clients originating, buying or financing German loans and portfolios; if we get it right, Germany could be a market that equals the size of the UK,” says Dixon, in respect of the big picture. He joined from Hatfield Philips early last year, tasked with expanding the business. Working alongside him are Gerard Nation, head of primary servicing, and Paul Lewis, special servicing head.

CBRELS was appointed as servicer on Project Chamonix, which Marathon bought from Lloyds, last February, and will continue to pitch for Lloyds’ trades, although Dixon is unsure whether these will continue at the same pace. Loan trades in Germany, generally, have so far been few and far between.

The company looked at the prospect of buying a German-based servicer, but decided to build and grow organically, as such a deal wouldn’t provide enough fee income. Crown Mortgage Management, where Dixon worked before joining Hatfield Philips, has sold its German operation to Mount Street.

In the meantime, CBRELS plans to build up its German business by seeking mandates to act as facility agent. It has already started  to approach German banks about managing their syndications or club loans and has so far won the support of pbb Deutsche Pfandbriefbank.

Spain is another market the firm is “looking at closely”, according to Dixon. However, the initial opportunity will be residential, not commercial. “It is attractive but we don’t think there’s any rush,” he says.

There is growing activity on the commercial side, however, and CBRELS is servicing its current book of Spanish loans from London. It services more than €400m of assets in Spain – including Colony’s €215m, three-loan Project Alpha – and intends to deploy someone there this year.

Last year, across the entire business, CBRELS picked up around €5bn of new servicing mandates from new originators, debt entrants and loan book buyers, making it one of the fastest growing mortgage servicers in Europe. “These aren’t CMBS deals; these are newly originated deals, refinancings or portfolio sales,” Dixon says.

Two thirds of the new work is linked to origination; one third involves portfolio sales, including Project Chamonix. Some 65% of the work is deals in the UK and southern Europe. One quarter of the £13bn overall business is in securitisations, including debt secured against Coeur Défense, Windermere X and Nexus.

CBRELS is the appointed servicer for the latest CMBS, the €363m Italian Gallerie, by Goldman Sachs, but Dixon doesn’t believe it marks a CMBS comeback. The overarching aim of the firm, which was launched in 2009, is to become a global servicing business. It manages loans for  US insurance company clients including MetLife, through Gemsa, its US sister organisation, which consolidates information provided by CBRELS into a global portfolio.

This is a model it is looking to replicate  in Asia, where it is pitching for mandates. “We’ve started the process of setting up in Sydney, in response to our clients,” notes Dixon, while CBRELS is also considering opening a Singapore office.

Situs: Advisory arm grows as Deutsche Bank buy beds in

The European arm of America’s Situs Group spent the past year consolidating its position on the back of its 2012 acquisition of Deutsche Bank’s €6bn-plus European loan servicing platform, while simultane-ously building up its advisory business.

Situs has been active in Europe in a loan advisory capacity since 2004 and only began servicing loans in 2011 when it was acquired by Helios AMC, owned by Ranieri Partners and others including Deutsche Bank.

“We’re going back to our core business: due diligence and underwriting, and arranging new finance,” notes Hugo Raworth, managing director in the London office. “We want to be seen as a debt advisory business which also does asset management and loan servicing.”

The Deutsche Bank acquisition reflects the group’s desire to expand and made Situs Europe’s third-largest independent servicer, behind Hatfield Philips and Capita. The mandate includes servicing the remaining legacy loans in the Deco conduit programme.

Last year, Situs secured advisory mandates covering €15bn of loans relating to new origination or loan portfolio acquisitions. On the servicing side, it has €21bn of loans under management with 10-12 banking, insurance company and private equity clients: 40% of this is in the UK; 40% in Germany; and the remainder across Europe. Over half of this is bilateral and includes its Nordic joint venture with HSH Nordbank and Helios AMC, which is tasked with servicing HSH’s €3bn legacy loans there and advising on work-outs.

What Raworth calls ‘platform business’ is important to Situs. As banks continue to evaluate non-core businesses “they will be forced to look at alternatives; banks’ costs per employee are greater than the cost of outsourcing,” believes chief operating officer Bruce Nelson.

In the past couple of months, the firm has taken on the servicing and asset manage-ment of Hypothekenbank Frankfurt’s (formerly Eurohypo’s) remaining $2bn US loans and is “exploring similar platforms with other entities in Europe”, says Raworth. Another recent mandate is the servicing of €200m of performing and non-performing loans in Latvia on behalf of an investor, which it has subcontracted to local firm Lindorff.

Building a Spanish presence

Situs also intends to build a presence in Spain. “Spain is on the radar,” Raworth says. “Spanish banks are outsourcing servicing. It’s going to be a big due diligence market for some time to come.” The country’s bad bank, Sareb, has a lot of work to do to prepare the assets on its books for sale.

Situs is also trying to net work-out and servicing mandates in Germany, where it acquired a company called Global Servicing Solutions Germany, belonging to Merrill Lynch and Ocwen Financial, in 2009.

The servicer is managing the work-out of two of the biggest German Treveria CMBS loans: the C tranche, which is in insolvency; and Treveria D, which is undergoing a consensual wind down. It is also the master servicer on Taurus 2013 GMF 1, the new securitisation of Gagfah’s German Woba multi-family housing portfolio.

New CMBS work is a fundamental plank in the business plan for Situs. It has won several of the primary and/or special servicing mandates for the securitisations issued since the start of 2012 (see table, p15), including Merry Hill – Deco 2012; Florentia 2012; Taurus 2013 GMFI; Chiswick Deco 2013; and, most recently, the £263m Debussy CMBS, secured on Toys R Us’s UK portfolio.

Nelson sees opportunities coming from banks outsourcing other functions, such as back office and credit/compliance work, while Situs is trying to put together a whole new business line providing loan servicing to industries such as aircraft, shipping and railways transportation. “You’ve got to play to your strengths and recognise gaps in the market,” says Raworth.

Mount Street: Morgan Stanley business is next target after lifting Crown

Mount Street is on a roll. Although the firm is not commenting, confirmation is expected soon of its selection as preferred bidder for Morgan Stanley’s loan servicing business (MSMS) and it recently purchased Crown Mortgage Management in Germany. Not bad for nine months’ work since the business was started by Ravi Joseph and former Deutsche Bank and CBRE loan  servicing head Paul Lloyd, who worked together at Morgan Stanley, plus Bill Sexton, with equity backing from US servicing firm Clayton Holdings.

Steve Northage was hired as head of loan management and primary servicing last summer and the London office’s headcount stands at nine, without taking into account staff it may inherit from MSMS. The Crown Mortgage Management acquisition took its loans under management to more than €2bn; with MSMS’s assets thrown in, that figure could top €5bn. Most of its business is new balance-sheet lending from lenders including Renshaw Bay, where Mount Street non-executive partner Lynn Gilbert worked.

Mount Street beat asset manager CR Investment Management to the MSMS deal in an off-market process. CR was looking to become a “one-stop-shop”, says another servicer, while Situs and Wells Fargo had also been in the running earlier in the process. Solutus also looked at buying Crown and some were surprised that Capita did not feature in the line up for MSMS.

However, one source says the group “might not have got the chance to go forward, as it was always going to go to Mount Street. CR was brought in to demon-strate that there was a process” – referring to the Mount Street partners’ deeper knowledge of the MSMS business.

MSMS’s loanbook includes five UK CMBS loans with a £1.54bn outstanding balance – including the loan secured against Beacon Capital Partners’ CityPoint tower – and four European CMBS loans totalling €1.45bn. Most of the European loans are thought to be in special servicing and all of them were made as part of Morgan Stanley’s  “well underwritten” ELoC securitisation programme, notes the other servicer.

Crown gave Mount Street a way into Germany. The Frankfurt operation, run by Elke Wagner, is relatively small, with just three staff, focused on residential loans. Crown’s main business, which wasn’t sold, is UK residential loan servicing.

Germany is a key market

Lloyd says the UK and Germany are key markets for the business and Mount Street knew it would want a German team at some stage, because it manages some German loans in the Titan 2007 CMBS, which it took off Capita. It is also servicer on all four loans remain-ing in the Windermere XIV CMBS, as of this month. Noteholders voted to replace Hatfield Philips as servicer across the deal.

They claim Hatfield Philips has been unresponsive and wasn’t transparent, particularly in the case of the €252.2m Italian Fortezza loan, which matured on 15 January, yet noteholders were kept in the dark regarding Hatfield Philips’s work-out proposal until the day before maturity.

Mount Street “wants to be different to any other servicer – liberal with information and transparency”, says Lloyd. “The one thing you need to be is transparent, especially with a note default pending,” he adds. “Clients don’t want to be a number. They want someone that understands deals and can add value.”

With regard to the SISU loan within Windermere XIV – which Mount Street was appointed special servicer on before it won the entire servicing contract – “our reporting is more open than any other servicer; there’s lots of commentary in there”, he says.

Solutus Advisors: Courting partners from the alternative debt pack

Having declined a couple of approaches it received from new lenders looking to acquire a servicing platform, eight-strong, London-based Solutus Advisors has flipped the concept on its head by seeking partnerships with alternative debt providers.

Alongside other servicers, the boutique firm is targeting new entrants without loan management expertise where “we might add other units to our business: loan origination, distribution, syndication”, says Darren Davey, a principal of Solutus.

While some of these new entrants to the debt market are building teams organically and others are looking to purchase a special servicer, some are keen to look at joint ventures. “A lot of people don’t want [to go through]  that figure-it-all-out time and want to hit the ground running with an established partner,” adds Davey.

Over the course of last year, Solutus worked with clients that have funds of around €3bn, deploying senior, mezzanine, or equity participation-type loans for the repositioning or development of assets, and capital expenditure requirements, which are more complex.

In addition the Solutus team is starting 2014 working with a new fund to help with the underwriting and servicing for similar style loans. “That’s where servicing makes money; it’s suited to our experience,” says Solutus co-founder James Bannister. Solutus, which has 11 loans in special servicing and naming rights on other loans as of this January, was set up with a real estate focus in 2010 by Bannister and Davey when they left Deutsche Bank’s DECO platform.

The first mandates for Solutus were loan transfers of two Titan loans, and DECO 6, 8 and 11, from Capita and Hatfield Philips respectively. Solutus says the transfers were triggered by various controlling-class noteholders in these securitisations. In Germany, Solutus opened an office in Frankfurt in 2012, run by former Deutsche Bank servicer Tim Schuy, who splits his time between Frankfurt and London.

Schuy has helped the special servicer branch into structured finance advisory work on deals totalling about €400m. “We’re advising sponsors on discounted payoffs, sourcing new financing and general advice on how they move into the new world,” according to Davey. Loan underwriting – in both Germany and the UK – is another route Solutus is trailing. “There are still a lot of German loans within CMBS and domestic banks that haven’t been dealt with,” says Bannister. “We’ll see a continued flow of non-performing loan portfolios in the short term.”

In the UK, in several cases it worked on the underwriting side for clients that were  in the bidding process for non-performing loan book trades. Solutus is only chasing new issuance selectively. Says Bannister: “The primary servicing side today is an economies of scale business with a big administrative function, rather than having an actively engaged servicer with in-depth knowledge of the loan and the real estate.

“We don’t think this is what primary servicing should be about, but servicers over the years have priced the market down in primary servicing to a level where we don’t believe the best job can be done. “As a business, we want to maintain profitability and provide a good service, and primary servicing can be profitable if you have volume and a client who understands the need to have an engaged primary servicer.”

Hatfield Philips: CMBS giant must diversify

Hatfield Philips International is Europe’s  dominant third-party CMBS primary and special servicer in terms of market share, with around €18.5bn of mandates. According to rating agency Moody’s, the company was special servicer on 48.5% of all CMBS in special servicing at the end of November 2013, which still represents plenty of profitable work – for the time being.

However, this means that in Hatfield Philips’ case, the key issue facing all loan servicers of how to develop their businesses away from CMBS is writ especially large. The servicer has had mixed fortunes over the past 12 months: while some loans have been successfully paid off, it also lost existing loans to newcomer Mount Street, after investor Lone Star and other note-holders transferred the mandates from Windermere XIV.

The first transfer, of the SISU loan, which was in special servicing, took place last summer, but only after Hatfield Philips initially refused to recognise a termination notice from Lone Star, questioning the preconditions for its replacement. The servicer cited the transfer condition that the original rating agencies of the deal must give rating agency confirmations (RACs) that the replacement would not adversely affect the ratings for the notes. However, Fitch had stopped providing such confirmations.

This month, noteholders voted to transfer  the other three remaining Windermere XIV loans to Mount Street, including those in primary servicing – the first time this has happened. Hatfield Philips has also been seen in the market as a business with no figurehead that has been drifting. Matthias Schlüter held the fort as managing director on the operations side, following the departure of Clarence Dixon to CBRE Loan Servicing.

Last April, the company changed hands when Starwood Property Trust bought the company’s US parent, LNR Partners, for $1.05bn from Cerberus, Oaktree and i-star – about a quarter of the price the sellers had paid seven or so years earlier.

 

 

 

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