DBRS Morningstar Confirms MOR CS1 Commercial Mortgage Special Servicer Ranking for Torchlight Loan Services

DBRS, Inc. (DBRS Morningstar) confirmed its MOR CS1 commercial mortgage special servicer ranking for Torchlight Loan Services, LLC (Torchlight or the Company), a wholly owned subsidiary of Torchlight Investors, LLC (Torchlight Investors). The trend for the ranking is Stable.

Torchlight has a lengthy track record as an adept special servicer for commercial mortgage-backed securities (CMBS) transactions. The Company demonstrates expertise with complex debt and real estate owned (REO) assets involving a range of property types across the United States. Torchlight Investors’ investment fund portfolio managers also have experience working out large-scale distressed non-CMBS assets.

After reducing its once sizable special servicing portfolio to a low level, Torchlight’s active volume increased over 2020 because of the Coronavirus Disease (COVID-19) pandemic, albeit to a lesser degree than some other special servicers. It also coordinated with master servicers to grant payment relief requests associated with the pandemic. In 2021, Torchlight successfully resolved many of the pandemic-triggered loan transfers and several more legacy assets.

The confirmed ranking also reflects these considerations:
-- Torchlight’s highly experienced executive team and senior managers. The cohesive organizational structure covers all essential functions and includes shared resources from Torchlight Investors for compliance, centralized reporting and accounting, portfolio surveillance, and legal oversight.
-- As a smaller-scale special servicer in recent years, Torchlight may have some key-person risk compared with some higher-volume special servicers. However, its organizational depth continues to be commensurate with actual and projected portfolio volume. The Company also demonstrates stability based on minimal employee turnover in the past few years and no turnover in 2021. During the height of the pandemic, Torchlight maintained reasonable workload levels essentially through staff redeployments and without external hiring. With CMBS special servicing volume easing in recent months, some investment fund asset managers have returned to their original roles.
-- Torchlight’s thorough analytics and controlled asset deliberation procedures. The Company also demonstrates diligent and controlled practices for investor reporting and accounting.
-- An excellent technology platform, which centers on the CMBS.com Backshop asset management system. Through vendor agreements and a mostly cloud-based computing environment, Torchlight has sound and expanded protocols for data security, data backup, and testing.
-- Effective audit and CMBS-centric compliance practices, which include comprehensive operational audits conducted on a two-year cycle and property manager audits for selected REO assets. The most recent operations audit report, issued in 2021, was overall satisfactory with only three items that were all deemed low risk and promptly resolved. Additionally, Regulation AB attestations have been clear of exceptions year over year. Monthly management compliance reports further serve to track the Company’s efforts to maintain timeliness, accuracy, and tight controls. Torchlight’s vendor management program encompasses a rigid vetting process, initial and annual risk ratings, and recurring data security assessments.

As of December 31, 2021, Torchlight was a named special servicer on 398 loans with an aggregate remaining unpaid principal balance (UPB) of $9.11 billion involving 24 CMBS securitizations (including six single-asset/single-borrower transactions). Seven of these transactions were issued before 2011. Torchlight was the named special servicer for a 2005-vintage commercial real estate collateralized debt obligation, whose one remaining loan paid off in early 2021. Through its debt funds, Torchlight Investors had approximately $5.70 billion in assets under management at YE2021.

As of December 31, 2021, excluding some non-CMBS assets in affiliated debt funds, the active special servicing portfolio contained 17 assets (10 loans and seven REO assets, including some secondary notes on the same collateral) with a combined UPB of approximately $646.0 million. By comparison, as of December 31, 2020, the active special servicing portfolio contained 42 assets (38 loans and four REO assets) with a combined UPB of approximately $920.7 million.

All rankings are subject to surveillance, which could result in rankings being raised, lowered, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar North American commercial mortgage servicer rankings are not credit ratings. Instead, they are designed to evaluate the quality of the parties that service commercial mortgage loans. Although the servicer’s financial condition contributes to the applicable ranking, its relative importance is such that a servicer’s ranking should never be considered as a proxy of its creditworthiness.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American Commercial Mortgage Servicer Rankings (September 3, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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