Fitch Affirms ORIX Capital Markets' Commercial Special Servicer Rating
--Commercial special servicer at 'CSS2'.
The special servicer rating reflects Fitch's assessment of the company's strong management and experienced asset managers, internal control environment with thorough policies and procedures and use of technology for quality control, as well as the financial strength of OCM's ultimate parent, ORIX Corp. The rating also reflects the company's aging special servicing technology relative to other highly rated servicers, the scalability of staff should defaults increase rapidly, as well as the company's 24-month internal audit schedule.
OCM has maintained stable staffing levels with relatively low overall turnover since significant staff reduction in 2013. Overall turnover during Fitch's last three reviews was 7% (2014), 22% (2015 - high due in part to the size of the group as only two staff departed) and none in Fitch's most recent review. OCM maintains a strong asset management team of seven with over 22 years of experience and a strong management team of five averaging 25 years of experience.
Fitch has highlighted as a concern OCM's aging special servicing technology relative to other highly rated servicers as the S3 system has not had material enhancements for some time. While not as robust as systems found at more highly rated servicers in terms of business plan generation and dashboards for quality control, S3 has broad operational functionality and generates weekly loan and real estate owned (REO) reports that are distributed to management for review. The S3 system also provides OCM with the ability to automate portions of the asset status reports and business plans.
Following the significant decline in servicing volume in 2013, OCM's total named special servicing portfolio has grown by 19% by loan count and 100% by balance since 2014 to 330 loans totaling $1.4 billion as of March 31, 2016. OCM's special servicing group is responsible for OCM's real estate investments and ORIX America's municipal and life sciences groups' investments. The municipal group originates loans that have real estate components, and the life sciences group focuses on healthcare. Fitch expects to continue to see a gradual increase in servicing assignments in order to maintain the core components of a special servicing platform such as staffing and technology.
As of March 31, 2016, OCM was named special servicer for 276 loans totaling $772.7 million in CMBS transactions, and in the process of working out 11 CMBS loans totaling $214.6 million (including five REO properties totaling $30.8 million). Also as of March 31, 2016, OCM was named special servicer for 54 non-CMBS loans totaling $672 million and was actively working out 18 non-CMBS REO properties totaling $82.2 million.
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