DBRS Morningstar Confirms CMLS Financial Ltd.’s Servicer Rankings

DBRS, Inc. (DBRS Morningstar) confirmed its MOR CS2 commercial mortgage primary servicer ranking and its MOR CS3 commercial mortgage master servicer and special servicer rankings for CMLS Financial Ltd. (CMLS or the Company). The trends for all three rankings remain Stable.

CMLS has an experienced management team and an acceptably designed organizational structure. Employee turnover has been relatively moderate. The Company has increased its servicing workforce in the past year and expects to add more staff in the coming months. Accordingly, CMLS should have the requisite resources to absorb a large portfolio transferring toward year end.

The overall effective technology platform centers on a current version of SS&C Technologies, Inc.’s Precision LM system and a proprietary asset management application that collectively address CMLS’ servicing requirements, including those for commercial mortgage-backed securities (CMBS) transactions. The Company is gradually increasing automation levels, including plans to launch a borrower portal. Data backup, recovery testing, and cybersecurity defenses appear to be sound.

The Company demonstrates proactive portfolio management and a record of timely and accurate investor reporting. The sound audit regimen encompasses annual CSAE 3416 reports (a Canadian form of a system and organization controls examination) and a quality assurance (QA) program managed by a dedicated team. The most recent 3416 audit was satisfactory and the most recent QA report contained fewer exceptions than in the prior quarter.

As a master servicer, CMLS has a successful performance record with CMBS trustee reporting and handling a modest amount of advancing. The ranking also considers the Company’s overall moderate activity in that role, which involves only one subservicer. However, subservicer tracking and auditing practices are commensurate with the level of required oversight.

Corresponding to CMLS’ low loan delinquency rates, its special servicing volume has been light year over year, although activity has increased this year. CMLS has acceptably controlled and attentive practices, along with sufficient staffing and acceptable technology, to address this work. Loan resolution outcomes have been successful and have mostly involved full payoffs.

As of June 30, 2023, CMLS’ total servicing portfolio contained 2,102 loan positions (3,071 collateral properties) with an aggregate $25.14 billion unpaid principal balance (UPB). It was the primary and/or master servicer on three CMBS transactions that contained 92 loans with an aggregate $1.02 billion UPB, including one transaction added in 2022. The balance of CMLS’ servicing clients were financial institutions, insurance companies, and other third-party investors. CMLS services loans secured by a variety of property types across most of the provinces. CMLS is the special servicer on the same CMBS transactions in which it serves as master and primary servicer. The active special servicing portfolio contained 12 loans with a combined $169.6 million UPB, including one CMBS loan.

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 Canadian dollars unless otherwise noted.

The principal methodology is North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592).

For more information on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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