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.

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.
-- Having become 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. Employee turnover in the past few years has been negligible and no managers have departed. Torchlight also redeployed some asset managers back to investment fund management during 2021–22 because of decreased CMBS special servicing activity.
-- 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 that centers on the CMBS.com Backshop asset management system. Through vendor agreements and a mostly cloud-based computing environment, Torchlight has sound 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. 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 operational 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, 2022, Torchlight was a named special servicer on 302 loans with an aggregate remaining unpaid principal balance (UPB) of $6.68 billion involving 17 CMBS securitizations (including five single-asset/single-borrower transactions). Five of these transactions were issued before 2011. Torchlight was the named special servicer for a 2005 vintage commercial real estate collateralized debt obligation (CRE CDO) whose one remaining loan paid off in early 2021.

As of December 31, 2022, excluding some non-CMBS completed and in-process workouts in affiliated debt funds, the active special servicing portfolio contained 11 assets (six loans and five REO assets, collectively including some secondary notes on the same collateral) with a combined UPB of approximately $461.5 million. Based on asset surveillance and prospectively becoming a named special servicer on more transactions, Torchlight forecasts its active special servicing portfolio volume to increase moderately over 2023–24.

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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