DBRS Morningstar Confirms CoreVest American Finance Lender, LLC’s Commercial Mortgage Special Servicer Ranking

DBRS, Inc. (DBRS Morningstar) confirmed its MOR CS3 commercial mortgage special servicer ranking for CoreVest American Finance Lender, LLC (CoreVest or the Company), a wholly owned subsidiary and division of Redwood Trust, Inc. (Redwood). The trend for the ranking remains Stable.

CoreVest has a solid track record and expertise overseeing permanent and transitional (bridge) small to midsize income-producing residential loans and real estate involving single-family rental (SFR) and multifamily housing, which is where the Company has experience as a lender and asset manager. DBRS Morningstar has an overall favorable view of CoreVest. The ranking in large part remains constrained by the fact that the Company to date serves solely in an oversight and approver role as a directing classholder (DCH) for its securitizations in which it manages assets and coordinates trustee reporting through third-party named servicers and special servicers. For CoreVest’s nonsecuritized assets in which it is the principal investor and approval authority, all customer-facing activity to resolve payment defaults and execute loan workouts also goes through third-party named special servicers, although the Company can directly manage and sell any real estate owned (REO) assets. Notably, the Company has the requisite infrastructure and capabilities to serve directly as a named special servicer for its product niche and transactions.

The confirmed ranking further reflects the following considerations:

-- CoreVest’s experienced professional asset management team. Several employees, including the head of asset management, have worked together for a number of years, including at other organizations where they handled portfolios concentrated with distressed business-based and various real estate-secured assets.

-- The Company’s operational stability based on relatively moderate employee turnover and no manager-level departures within its asset management team during the past three calendar years through Q2 2023. The operating structure, including resources provided by Redwood, encompasses the essential components for sound special servicing. To serve as a named special servicer for rated securitizations, CoreVest may benefit by establishing a distinct investor reporting function.

-- CoreVest’s successful performance during the past few years in its defined roles resolving troubled loans, with most outcomes resulting in full payoffs. The Company also has directly sold many nonsecuritized REO properties with overall excellent recoveries.

--The Company’s proactive asset management and portfolio surveillance practices, supported by its technology. CoreVest has adequately documented policies and procedures, although they could be expanded in scope of areas covered and with more detail.

-- A mostly cloud-based technology platform that addresses CoreVest’s business needs and asset types. The Company uses a customized version of a Salesforce, Inc. application for workflow/data management that is integrated with Yardi Systems, Inc.’s real estate accounting software and a proprietary data warehouse. CoreVest also recently changed its reporting and analytics tool to Microsoft Power BI. A Redwood IT team, with allocated staff for CoreVest, oversees self-managed data centers, sound practices for data backup and security, and annual recovery tests. Security protocols include annual reviews of third-party service providers.

-- An acceptable internal audit function that performs annual financial (Sarbanes-Oxley Act) and operational reviews across CoreVest. The most recent financial and operational reviews performed for CoreVest did not cite any significant exceptions. Should CoreVest become a special servicer on a publicly rated transaction, it will undergo Regulation AB attestations as well. The tracking features of the asset management application further support efforts for proactive surveillance and asset management.

As of December 31, 2022, CoreVest had approximately $4.8 billion of assets under management. It was the DCH on 17 rated term-loan and two unrated transitional-loan securitizations, totaling 1,332 loans with a combined unpaid principal balance (UPB) of $3.71 billion secured by 28,986 real estate properties.

As of December 31, 2022, the active portfolio contained 116 loans (on a consolidated note basis) and two REO assets, with a combined UPB of approximately $213.3 million involving 801 collateral properties. Approximately 51% of the active assets (based on all note positions) were in securitized transactions. Approximately 72% of the active assets (based on all note positions) involved SFR, and 24% involved multifamily properties.

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; https://www.dbrsmorningstar.com/research/402499).

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