DBRS Morningstar Confirms Sabal Capital Partners’ Commercial Mortgage Primary and Special Servicer Rankings

DBRS, Inc. (DBRS Morningstar) confirmed its MOR CS2 commercial mortgage primary servicer ranking and MOR CS3 commercial mortgage special servicer ranking for Sabal Capital Partners, LLC (Sabal or the Company), which conducts its servicing business through its wholly owned indirect subsidiary, SCP Servicing, LLC. The trends for both rankings remain Stable.

In December 2021, Sabal became a wholly owned indirect subsidiary of Regions Bank (Regions), which acquired Sabal’s parent company from investment funds owned by Stone Point Capital LLC. The Regions acquisition included Sabal’s entire lending and servicing platform but excluded its affiliated investment management platform. Sabal has continued its loan production and servicing activities as usual and retained substantially all of its existing processes, technology, operating departments, and employees.

Sabal’s integration into Regions has progressed well and the Company continues to align its general operating practices with Regions’ compliance requirements as a regulated bank. Sabal also expects Regions’ loan origination channels, client relationships, and other resources to increasingly bode well for the Company’s servicing business. In this regard, Sabal is preparing to become the successor servicer for a portfolio that will likely double its servicing volume by unpaid principal balances.

The primary servicer ranking reflects Sabal’s multiyear record as an adept servicer for government-sponsored enterprise (GSE) multifamily loan programs and especially for Freddie Mac small-balance loan securitizations. Through its affiliate, Sabal TL1, LLC, a licensed seller/servicer since 2020 for Freddie Mac conventional loans, Sabal is a subservicer for several Freddie Mac K-Series securitizations as well. With four active transactions to date, the Company has a shorter, but growing, history servicing conduit CMBS loans that include property types other than multifamily. Although Sabal’s honed niche is the smaller-balance, multifamily sector, it also services some larger loans.

Sabal’s operating strengths for primary servicing include its experienced professional staff and management team, well-designed organizational framework, and proactive and controlled asset administration. Although Sabal had some employee turnover in 2022, it has been relatively moderate compared with some other servicers. The Company has also had no manager-level turnover for the past several years. To address continual portfolio growth, the Company has bolstered staffing, especially in the areas of insurance and surveillance, to maintain reasonable workload levels. For the incoming portfolio transfer, Sabal has a mandate to hire more staff. A Regions portfolio management team has moved into the servicing operation as well. A multicomponent internal audit and compliance program further supports the servicing operation.

The Company’s well-integrated technology applications provide mostly automated transaction processing and reporting, including an effective proprietary borrower portal. Sabal has sound protocols for cloud-computing network management, data backup, and data security supported through service providers. During 2023, Sabal expects to integrate its technology platform into Regions’ network and data center configuration, which will have cloud-computing components.

The special servicer ranking reflects Sabal’s reduced operational scale and modest asset management activity after concluding its legacy distressed-debt transactions a few years ago. The Company’s experience to date resolving specially serviced CMBS conduit loans remains limited as well. However, Sabal has a solid record of successful asset resolutions, sound practices, and experienced staff. The technology platform suitably addresses GSE and CMBS reporting requirements. Sabal’s sound operating position is commensurate with its current and near-term projected needs.

As of June 30, 2022, the total servicing portfolio contained 1,683 loans with an unpaid principal balance (UPB) of $5.03 billion, up from 1,642 loans and a $4.72 billion UPB from a year earlier. By count, multifamily loans comprised 91% of the servicing portfolio. Approximately 81% of the portfolio, or 1,371 loans, were Freddie Mac-sponsored, including 1,281 in 75 securitized transactions. The remainder of the serviced portfolio included 111 CMBS loans ($669.3 million UPB) in three transactions, eight loans warehoused for securitizations, 186 Fannie Mae loans, and seven loans for other investors.

As of June 30, 2022, Sabal was the named special servicer for 878 loans with a UPB of $3.25 billion covering 21 Freddie Mac small-balance securitizations and two CMBS transactions. Sabal was the primary servicer for all these transactions. The active special servicing portfolio contained seven loans and two real estate owned (REO) properties with a combined $38.9 million UPB. The securitized portion contained six loans (all Freddie Mac) and two REO properties (one CMBS-held and one Freddie Mac securitized) with a combined $37.9 million UPB.

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 8, 2022), 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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