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CRE Finance World, Autumn 2013

More Money, Fewer Problems? U.S. CMBS Servicers Position for Continued Growth In Commercial Real Estate Lending the first sale of a large special servicer by a private equity owner that acquired the company after the U.S. CMBS market ground to a halt. While the strategy focuses on loan growth, according to Standard & Poor’s analyst E. Robert Hansen, “We think LNR’s special servicing business could benefit somewhat in the event of an industry downturn and will add some diversification to Starwood’s total revenues” (see published April 19, 2013, on RatingsDirect). CT Investment Management LLC (CTIMCO) In December 2012, an affiliate of The Blackstone Group LP (Blackstone) acquired CTIMCO, an investment management business operated through a subsidiary. Blackstone subsequently renamed that business Capital Trust Blackstone Mortgage REIT, however, the special servicing business line continues to operate as CTIMCO. In April 2013, shortly after the acquisition, The Wall Street Journal reported the company planned to raise $100 million in equity. We believe this acquisition and the subsequent equity infusion is another example of a new business plan that is predicated on continued growth in the credit markets as opposed to focusing mainly on distress. Ares Commercial Real Estate Corp. In May 2013, Ares (ticker symbol: ACRE) agreed to buy multifamily lender Alliant Capital LLC, which originates loans and provides asset management and servicing primarily through Fannie Mae’s delegated underwriting and servicing program. We believe this acquisition enables Ares, a specialty finance company, to deliver a more diverse set of loan products, in particular adding a permanent financing option for customers. In our opinion, the theme of growth through lending continues. Orix Capital Markets LLC Orix put approximately $1.5 billion in distressed loans and real estate owned (REO) properties up for sale in May 2013, with advisers Mission Capital and CB Richard Ellis. According to Commercial Real Estate Direct, Orix offered the portfolio sale to “take advantage of strong investor demand for distressed and otherwise high-yielding assets.” Assuming the portfolio sale successfully maximizes recovery and investor demand remains healthy, we would anticipate other CRE Finance World Autumn 2013 42 special servicers to follow suit. However, we believe many servicers are already pursuing the bulk sale strategy, albeit not with their entire portfolios. Special Servicers Are Likely To Continue To Refocus As The Economy Stabilizes and Real Estate Lending Recovers Given the recent downturn’s length and depth, some commercial mortgage special servicers have had to restructure and resolve a significant amount of defaulted commercial mortgages. As in past cycles, this process of working through distressed mortgages is likely to end with the special servicing industry shrinking because fewer personnel are required once there are fewer defaulted loans to restructure and resolve. More servicers, particularly special servicers, appear to be positioning for growth in lending. While fewer personnel will be needed to work out loans, growth in lending should create new opportunities for those with workout experience. As in previous upturns, we believe many of these loan workout professionals will prove invaluable to as new business models are developed. Related Research: • “Starwood Property Trust Inc.,” published April 19, 2013, on RatingsDirect. • “It’s Complicated: The Implications of Increased Special Servicing Transfers for CMBS,” published Aug. 8, 2012, on RatingsDirect. • “Standard & Poor’s Comments On Potential Conflicts Of Interest Within Commercial Special Servicing,” published March 9, 2012, on RatingsDirect. • “Risks Increase In 2013 Vintage U.S. Conduit CMBS,” published June 10, 2013, on RatingsDirect. External Sources: • Commercial Mortgage Alert, published Sept. 6, 2013. • “Special Servicing Volume Falls to Lowest Level In 4 Years,” Commercial Real Estate Direct, published Aug. 7, 2013. • “LNR Captains Resign As Starwood Charts Its Own Course,” The Wall Street Journal, published May 1, 2013. • “Orix Puts $1.5Bln of Distressed Loans, REO on Sales Block,” Commercial Real Estate Direct, published April 30, 2013. • This material has been reproduced with permission of Standard & Poor’s Financial Services LLC. Copyright September 26, 2013.


CRE Finance World, Autumn 2013
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