Fitch Ratings has affirmed
RATING ACTIONS
Entity / Debt
Rating
Prior
CMBS Master Servicer
CMS1
Affirmed
CMS1
CMBS Primary Servicer
CPS1
Affirmed
CPS1
CMBS Special Servicer
CSS1-
Affirmed
CSS1-
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VIEW ADDITIONAL RATING DETAILS
Key Rating Drivers
The affirmation of the primary and master servicer ratings reflects KBREC's continued dedication to maintaining and developing servicing technology, strong loan administration abilities including a robust, well-controlled primary servicing platform, solid subservicer oversight capabilities, as well as a long history servicing securitized and non-securitized loans.
The ratings also reflect continued elevated turnover as well as the company's experienced senior management team and deep management bench. The primary servicer rating also considers the limited number of loans outsourced to a third-party (5% by loan count) and the potential for a limited number of loans to be outsourced in the future based on the current shared services agreement which Fitch continues to monitor.
The affirmation special servicer rating reflects the company's ability to manage a high volume of defaulted loans with strong asset management technology, experienced asset managers, and strong policies and procedures for key special servicing functions. The rating also considers continued elevated turnover partially driven by declining specially serviced assets and mitigated by a lower assets to asset manager ratio compared to peers indicating excess capacity.
All ratings also reflect KBREC's strong technology environment focused on automation, controls, and continuous improvement, experienced senior management team, strong internal controls structured along the three lines of defense methodology, and financial condition of the parent company. Fitch maintains a long-term Issuer Default Rating (IDR) of 'A-'/Stable for the holding company
The company's servicing portfolio includes securitized, government-sponsored entity, institutional investor and life company loans, among others. KBREC maintains a strong business plan underpinned by internal loan originations and a robust third-party servicing business for securitized and non-securitized loans on behalf of a diverse client base.
Single asset single borrower (SASB) transactions drove KBREC's recent securitized master and special servicer assignments. During 2021 through 1Q2022, KBREC was appointed as master servicer on 69 SASB transactions (64% of all assignments) and special servicer on 37 SASB transactions (29% of all assignments). The company's non-securitized portfolio continues to grow through new and expanded third-party client relationships as well as the bank's increasing focus on balance sheet originations.
KBREC's technology environment is highly developed, allowing for many automated processes with workflow controls. KBREC uses Strategy version 19F from
Dedication to continuous technology improvement is a strength. RECWeb was updated to track master servicing audit results year-over-year and to feed directly into a proprietary net present value model. The external borrower and investor portal, Key2CRE, was updated with improved user experiences for property searching and mapping and added datapoints for third-parties using API connections. KBREC is finalizing a FEMA API connection for natural disaster tracking and centralizing external CCR approval of special servicing actions in the portal.
Borrower website usage growth has been substantial as the number of enrolled borrowers is up to over 16,700 from 8,000 last review, representing approximately 89% of active loans which is the highest among large Fitch-rated primary servicers. KBREC continues to actively invest in robotic process automation and is working to implement a tool to extract data from insurance ACORD forms.
As of
Overall turnover for primary and master servicing increased to 22% from 19% at Fitch's last review and 12% in 2020. Fitch notes that several Fitch-rated servicers have established satellite servicing offices in the
Special servicing overall turnover increased to 23% from 18% and 16% at the last two reviews, consisting of seven voluntary departures. Asset manager turnover also increased to 46% from 17% and 26% during the same period, which appears high given the small size of the group. KBREC continues to maintain a bench of experienced asset managers with an asset to asset manager ratio 9:1, down from 16:1 last review, and below special servicing peers indicating excess capacity should loan defaults rise.
As of
Also as of
Torchlight (CSS2),
As of
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