Special servicer spotlight: LNR Partners

The world’s largest CMBS servicer says its actual special servicing activity during the covid-19 crisis is more than what the numbers show.

LNR Partners is the world’s largest commercial mortgage special servicer by active loan count and balance, with active referring to defaulted loans.

The Miami-based company, which is the special servicing subsidiary of Starwood Property Trust, also is a third-party special servicer, with third-party servicing now representing 72 percent of its named, or designated, special servicing portfolio. As of April, it had an active CMBS special servicing portfolio that included 104 CMBS loans totaling $1.6 billion and 207 REO assets representing $3 billion in outstanding balance, according to Fitch Ratings. It was also the named special servicer for 6,425 commercial mortgage loans in 185 CMBS transactions as of 31 December.

“There have been a lot of workouts done by all special servicers in this cycle without a loan having defaulted or been designated specially serviced”

Job Warshaw
LNR Partners

LNR had 177 employees as of 2019, up from 164 in 2018. Of the 177 employees, 93 are dedicated to special servicing, Fitch Ratings data showed.

Warshaw, however, says much of LNR’s recent special servicing activity may not be reflected in recent data, since some borrowers had not yet defaulted on the loans when they approached LNR for relief in anticipation of cashflow issues. “There have been a lot of workouts done by all special servicers in this cycle without a loan having defaulted or been designated specially serviced,” he notes. “It’s an important distinction from the last cycle where many of the assets entering special servicing had already defaulted.”

Particularly with hotel loans, many workouts have been very short term in nature, with borrowers using other types of reserves that are held as collateral by the servicer to make their loan payments for three or four months. With such deals, the loan does not go into payment default because it is kept current by the other reserves, Warshaw explains.

“In the past, when you’ve had an economic downturn, you could always gauge how busy special servicers were by looking at the delinquencies. But this was above and beyond delinquencies that were flooding into special servicers’ shops,” observes Adam Fox, senior director at Fitch Ratings.

With the current crisis, however, “you still had borrowers keeping loans current while they were seeking debt relief,” Fox explains. “It didn’t necessarily meet the definition of a formal transfer to special servicing.” In fact, Fitch stopped tracking special servicing volume back in August, because many of the loans had moved out of special servicing and back to performing status.

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