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KeyBank's Loan Servicing Does it Again

by Commercial Mortgage Alert Rankings 02.15.2018

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Wells Fargo snagged more than half the master-servicing contracts on commercial MBS offerings again last year, while KeyBank and Midland Loan Services landed in a near-tie for second place.

As U.S. issuance soared by 26% to $95.3 billion in 2017, Wells received 59.5% of the master-servicing assignments on new deals by dollar volume, according to Commercial Mortgage Alert’s CMBS Database.

The other two major players in the field each captured an 18.6% slice of the business last year. For Key, that reflected a slight drop from 19.5% in 2016, while PNC’s Midland unit increased its market share from 16.2%.

Key tends to be more successful winning contracts on single-borrower offerings, while Midland concentrates on those tied to conduit deals. They have jockeyed back and forth with each other several times over the years for second place in the master-servicer ranking. After trailing well behind Midland at mid-year, Key surged in the second half and finished ahead by a nose, with mandates on $17.77 billion of transactions to Midland’s $17.70 billion.

Perennial leader Wells enjoys a decided advantage because it’s a major real estate lender and CMBS underwriter. It often gets the master-servicing mandate when it contributes collateral to an offering or runs the books on a transaction. “That’s the power of the Wells Fargo platform,” said executive vice president Alan Kronovet. He added that the bank pursues servicing contracts on deals whether or not it has the inside line. “Our strategy is to be in the market every week and to be competitive for every deal,” Kronovet said, echoing comments made separately by executives and Key and Midland about their own approaches.

All three shops are optimistic about CMBS issuance increasing again this year, if not necessarily so rapidly. That’s important because it would help boost the volume of outstanding CMBS, which has contracted sharply since the crash to about half its 2007 peak of roughly $800 billion. In fact, last year’s surge in issuance helped mitigate the runoff of the final wave of pre-crash deals.

“In the end, the refinancing of that maturing debt was spread over several years, and it wasn’t as disruptive as might have been expected,” said Marty O’Connor, Key’s head of loan servicing and asset management. It was also a relief to see CMBS issuers adapt to federal risk-retention rules that took effect in late 2016, negating fears that compliance would drive up borrowing costs and constrain issuance, he said.

Loan servicing is largely a fixed-cost operation, so the CMBS sector has traditionally been dominated by a few companies that benefit from economies of scale when bidding for assignments. This year’s anticipated rise in interest rates will factor into bids because the servicers must project returns on the “float,” including interest they earn on reserves and on loan payments held briefly before being forwarded to bondholders.

“Increasing short-term rates is beneficial to the servicing business, that’s for certain,” said Midland executive vice president Stacey Berger. But, “how increasing rates fit into each servicer’s bid analysis is different,” he said. “Our bids for servicing rights are based on projections of short-term interest rates over a 10-year period.”

As of mid-year 2017, Wells held $301.8 billion of master- and primary-servicing contracts on U.S. commercial mortgages in private-label securitizations, according to the Mortgage Bankers Association. It was followed by Midland with $156.1 billion and Key with $71.5 billion. When all types of commercial mortgages were counted, including portfolio loans and agency debt, Midland ranked first, with $535.2 billion of mandates. Next up were Wells ($503.4 billion), Berkadia ($211 billion), Key ($201.1 billion) and CBRE Loan Services ($119.9 billion).


 

Special Servicers for US CMBS Issued in 2017

Rank Lender 2017 Issuance ($Mil.) No. of Deals Market Share (%) 2016 Issuance ($Mil.) No. of Deals Market Share (%) '16-'17 % Chg.
1 Midland Loan Services $18,021.9 57 18.9 $11,455.5 36 15.1 57.3
2 KeyBank $13,092.9 48 13.7 $6,262.0 26  8.2 109.1
3 Aegon USA Realty $12,902.9 54 13.5 $7,976.7 38 10.5 61.8
4 Rialto Capital $12,356.5 40 13.0 $12,991.8 41 17.1 -4.9
5 Wells Fargo $12,115.2 44 12.7 $9,614.7 44 12.7 26.0
6 LNR Partners $9,382.9 24 9.8 $5,665.5 23 7.5 65.6
7 CWCapital Asset Management $5,672.4 30 5.9 $8,059.0 40 10.6 -29.6
8 Trimont Real Estate Advisors $4,172.4 8 4.4 $1,989.7 10 2.6 109.7
9 Cohen Financial $2,130.0 17 2.2 $0.0 0 0.0
10 Capital Automotive $1,412.0 1 1.5 $470.0 1 0.6 200.4
11 C-III Asset Management $1,168.3 6 1.2 $3,539.6 20 4.7 -67.0
12 Strategic Asset Services $805.0 1 0.8 $616.3 4 0.8 30.6
13 Hudson Advisors $798.8 2 0.8 $506.3 1 0.7 57.8
14 NCB $288.6 5 0.3 $419.3 6 0.6 -31.2
15 SCF Realty Capital $248.1 1 0.3 $0.0 0 0.0
16 Freddie Mac $238.4 3 0.2 $115.7 1 0.2 106.1
17 Situs $201.1 1 0.2 $298.6 3 0.4 -32.7
18 Sabal Financial $96.8 5 0.1 $38.4 2 0.1 152.3
19 Arbor Commercial Mortgage $83.8 3 0.1 $86.2 4 0.1 -2.8
20 Torchlight Loan Services $56.5 1 0.1 $3,116.2 16 4.1 -98.2
21 Berkeley Point Capital $51.3 4 0.1 $0.0 0 0.0
22 Hunt Mortgage $47.6 2 0.0 $52.4 3 0.1 -9.1
OTHERS $0.0 0 0.0 $2,693.8 26 3.5 -100.0
Total with Special Servicer $95,343.3 196 100.0 $75,967.3 166 100 25.5

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