How to Maintain Servicing Levels When Originations are Down

In the wake of the CMBS industry downcycle during the Great Recession, servicers may be having to figure how to maintain the volume of their business. One strategy may be to acquire other servicing companies.

In the wake of the CMBS industry downcycle during the Great Recession, servicers are determing how best to maintain their business volume. One strategy may be to acquire other servicing companies.

Master servicers have been experiencing dwindling assets these past few years, as the amount of CMBS loans paying off or being disposed of as distressed assets has not been equally replaced by new originations, explained Daniel Phelan, president & CEO of Pacific Southwest Realty Services, a certified mortgage and commercial mortgage servicer.

As the loans originated in 2003-2007 mature, “a large amount of loans will be rolling off in 2013 and 2017. To keep their servicing operations and people in place, the question becomes how these servicers can keep their profitability when little new product has been originated,” said Phelan.

As an example of mergers in the servicing business, in May, KeyBank Real Estate Capital agreed to purchase substantially all of the third-party CMBS and special servicing rights from Bank of America’s Global Mortgages & Securitized Products business. Keybank also agreed to buy Berkadia Commercial Mortgage L.L.C.’s special servicing business, and it entered into a long-term sub-servicing agreement with Berkadia under which Berkadia will sub-service all CMBS primary servicing acquired from Bank of America.

Following the acquisitions, KeyBank will have a commercial mortgage servicing portfolio of about $205 billion, ranking it among the three largest servicers of commercial and multi-family loans in the U.S.

Phelan commented that KeyBank’s acquisition of Bank of America’s servicing portfolio enables it to boost its servicing business at a time when the pipeline of new servicing contracts is not necessarily robust. And KeyBank already has the servicing infrastructure in place to take advantage of the additional servicing volume, he added. Phelan surmised that Bank of America, the seller, may be relinquishing its servicing as a non-core business while it focuses on loan originations.

CPE reported that Marty O’Connor, executive vice president & head of KeyBank Real Estate Capital Loan Servicing and Asset Management, said that the portfolio acquisitions will allow the company to “further leverage our highly rated servicing platform,” while “our existing partnership with Berkadia will allow us to quickly integrate the Bank of America portfolios.”