Fitch Ratings has affirmed Ares Commercial Real Estate Servicer LLC's (AresCRE) commercial real estate loan level special servicer rating at 'CLLSS2-'.

RATING ACTIONS

Entity / Debt

Rating

Prior

Ares Commercial Real Estate Servicer LLC

CMBS Loan Level Special Servicer

CLLSS2-

Affirmed

CLLSS2-

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VIEW ADDITIONAL RATING DETAILS

Key Rating Drivers

The affirmation reflects AresCRE's experienced and tenured staff, continued demonstrated proficiency in asset management and loan resolution, the historically low employee turnover and pooled staffing model, a demonstrated commitment to continual servicing technology development and modernization, and investment grade financial support provided by its parent.

The affirmation also considers AresCRE' internal controls for specially serviced loans that currently consist of manager reviews and oversight from investment committee meetings. While AresCRE has the capacity to leverage the compliance and internal audit resources of its parent, the volume of specially serviced loans has yet to be sufficient enough to fully demonstrate the proficiency of internal controls.

AresCRE is the commercial real estate (CRE) special servicing entity and an indirect subsidiary of Ares Management Corporation (Ares). Special servicing functions performed by AresCRE represent a core business central to Ares's real estate debt and overall investment platform. Founded in 1997, Ares offers its clients primary and secondary investment solutions across the credit, private equity, real estate, and infrastructure asset classes.

Ares's real estate business represents approximately $46 billion of Ares' $325 billion AUM. Of Ares' total real estate AUM, $10 billion is in real estate debt AUM. AresCRE performs special servicing functions primarily for Ares and its affiliates, which prior to 2021, were concentrated in non-securitized loans. Special servicing resources are based on a shared staffing model, as 11 total staff are employed by Ares or its subsidiaries and are assigned to the special servicer as necessary. The head of the special servicing group, who has 15 years of industry experience, reports to the president and chief executive officer of Ares real estate debt and is responsible for coordinating all special servicing activities among AresCRE pool of asset managers.

Collectively, the senior management team average 16 years of industry experience and four years of tenure, while the middle managers average 23 and 10 years, respectively. There were two voluntary middle manager departures in 2021, resulting in total function turnover of 18%, up from 0% during 2020.

AresCRE's proprietary special servicing system, the Infinity Real Estate Debt Portal, is a Salesforce-based data warehouse that tracks deals from initial pipeline through closing and eventual payoff. Subsequent to last review, AresCRE has selected a new asset management system, Native Atlas, to support both debt and equity real estate investments, and expects to continue implementation into late 2022 and early 2023. While Fitch does not rate any servicers that are currently using Native Atlas, it believes the functionality to be similar in scope to other systems frequently employed by highly rated servicers to manage a high volume of defaulted loans.

Subsequent to last review, Ares internalized its internal audit function while concurrently hiring a new head of internal audit with more than 25 years of experience, providing audit and advisory services to other financial institutions. AresCRE's internal audit function is overseen by the new head of internal audit, who reports to the Ares audit committee and administratively to the CFO, previously co-sourced with a third-party vendor.

During discussions with Ares management, Fitch noted that the new internal audit scope was recently defined, with the special servicing function included. Additionally, it was noted that the newly internalized internal audit function was proactively included in recent REO workout updates, as well as other related special servicing functions.

As of March 31, 2022, AresCRE total named special servicing portfolio comprised three securitized transactions containing 51 loans totaling $2.2 billion and 138 non-securitized loans totaling $6.3 billion. Securitized special servicing represents one 2017 and two 2021 vintage CDO transactions, reissued and issued by affiliates in 2021, respectively. Non-securitized consists of affiliate balance sheet and investment fund loans as well as a third-party insurance company.

Additionally, since last review the company sold its only REO asset, which was a full-service hotel in Tarrytown, NY, which became REO in March 2019, collateralized a $38.6 million non-securitized loan, while concurrently also completing 26 modifications year over year, totaling $1.6 billion in UPB for the modified loans.

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

Criteria for Rating North American Commercial Mortgage Servicers (pub. 22 Jan 2020)

Criteria for Rating Loan Servicers (pub. 08 Feb 2020)

ADDITIONAL DISCLOSURES

Solicitation Status

Endorsement Policy

ENDORSEMENT STATUS

Ares Commercial Real Estate Servicer LLC

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