Fitch Places CBRE's Commercial Primary Servicer Ratings on RWP; Affirms Special Servicer Rating
OREANDA-NEWS. Fitch Places CBRE's Commercial Primary Servicer Ratings on RWP; Affirms Special Servicer Rating Fitch Ratings has placed CBRE Loan Services Limited's (CBRE; formerly CBRE Loan Servicing) 'CPS2' UK Commercial Primary Servicer Rating on Rating Watch Positive (RWP). At the same time the agency has affirmed CBRE's Special Servicer Rating at 'CSS2'.
Following the rating review, Fitch has received material feedback from the servicer regarding procedures and controls and is in the process of receiving some additional information regarding third party audits carried out of CBRE Group (CBG) and CBRE, which could have a positive impact on the primary servicer rating. The rating will remain on RWP until Fitch can complete a full assessment of this additional information. Depending on the outcome of the assessment, it could result in an upgrade or affirmation.
While the additional information is also relevant for the special servicer rating, Fitch notes that the number of specially serviced UK loans under management remains small and the servicer has less experience as a special servicer compared with UK rated peers. Hence, we do not expect an impact on its special servicer rating, leading to its affirmation. However, a number of loan and portfolio resolutions were completed over the same period, further demonstrating CBRE's ability to use a variety of work out methods with good results.
In Fitch's view, CBRE's growing servicing portfolio and client diversification warrant a primary servicer rating at least at the current level.
In 2015, a large servicing client withdrew from the commercial real estate market - leading to the loss of 80 loans, with a value of approximately EUR2bn, from CBRE's UK servicing portfolio. Despite this total assets under management in the UK grew 2.6%, between year-end 2014 and year-end 2015, by value. The new servicing mandates are from a number of different sources and client types, which Fitch views as beneficial for the company's sustainability.
CBRE continues to demonstrate effective servicing capabilities. The servicer boarded a significant number of new loans onto the servicing platform during 2014 and 2015. In Fitch's view, the transfers were completed efficiently with sound quality control. The timeliness and control of primary servicing activities, such as loan administration and investor reporting, are in line with UK-rated peers.
The ratings reflect a stable senior management team, with average industry experience, and company and role tenure in line with UK-rated peers. The servicer continues to receive operational support from the wider CBG, which Fitch has factored into the ratings. In 2015, CBG rolled out an enhanced performance and development review framework, which provides CBRE with a more structured competency matrix and succession planning process.
Fitch does not publicly maintain an Issuer Default Rating (IDR) for CBG. However, Fitch's real estate investment trust group performed a financial assessment of CBG and determined the company's short-term financial viability as adequate to support the servicing platform. CBRE's audited year-end financial statements showed an improving profitability trend between 2012 and 2014. Revenues increased significantly during this period, while total cost to service reduced.
As of end-2015, CBRE acted as primary servicer on 241 UK loans (2014: 219), with a value of GBP10.5bn (2014:GBP10.2bn) and as special servicer on three UK loans (2014: three), with a value of GBP903m (2014:GBP903m). CBRE also acted as servicer on 94 non UK loans (2014: 61), with a value of EUR7.7bn (2014:EUR7.5bn).
The servicer rating is based on the methodology described in 'Rating Criteria for Structured Finance Servicers' dated 23 April 2015, which includes a comparison of similar UK servicers as part of the review.
In accordance with Fitch's policies the servicer appealed and provided additional information to Fitch that resulted in a rating action that is different to the original rating committee outcome.
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