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CRE Finance World, Summer 2012

Analyzing Special Servicer Performance versus a high of 25.7 months for Midland. This may indicate that Across the five special servicers, average loss severity ranges the firm holds a strategic advantage in successfully resolving REO from 48.9% for CWCAM and Torchlight to 53% for C-III. When assets in a timely fashion. examining term defaults, which account for 91% of all dispositions, the difference narrows slightly, with Torchlight again reporting the C-III appears to be working to shorten resolution times for assets lowest loss severity at 53.4% while LNR is reporting the highest at within its portfolio. Although historically, the firm reports a resolution 56.1%. time in line with the industry average at 13.5 months, the length of time that unresolved assets have been in its portfolio is significantly Figure 14 below average, at 17.7 months versus 20.2 months. Loss Severity (2005-2008 Vintages) Across the five special servicers, Midland generally reports lengthier workout times, averaging 15.1 months for resolved loans and 23.1 months for unresolved loans. As further indication of their increased borrower focus regardless of loan size, the firm reports the smallest difference in resolution time by balance, with only 1.8 months Source: NSI, See Footnote 2 difference for loans with balance under $10 million and larger loans. Figure 15 Figure 13 Outstanding Portfolio Months spent in Special Servicing Source: NSI, See Footnote 2 Loss Severity Source: NSI, See Footnote 2 Loss severity for all loans that were specially serviced at any time prior to disposition averages 41.2%, rising to 51.7% for loans that C-III currently reports the highest loss severity for dispositions were transferred during their loan term. Due to differences in the of assets securitized in the 2005-2008 vintages while CWCAM vintage profile across the special servicers, we focus primarily on reports the lowest. However, C-III’s portfolio is more heavily loss severity for loans securitized in 2005-2008 vintage deals. As weighted to loans securitized at the peak of the market. Currently, expected, loss severity is significantly higher for loans secured in 21% of dispositions of loans from the top five special servicers these vintages, averaging 51.1% and rising to 55.1% when exclud- were securitized in 2007-2008, rising to 31% for C-III. In contrast, ing maturity defaults (Figure 14). CWCAM benefits from a more favorable vintage distribution, with 12% of their dispositions securitized during these years. Examining only dispositions of loans securitized between 2007 and 2008, we find that average loss severity for assets within C-III’s portfolio is actually lower than other servicers’ results. This effect is likely to moderate, as we see less distinction by vintage within the special servicers’ existing portfolios (Figure 15). CRE Finance World Summer 2012 36


CRE Finance World, Summer 2012
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