Morningstar DBRS Assigns MOR CS3 Special Servicer Ranking to 3650 REIT Loan Servicing

DBRS, Inc. (Morningstar DBRS) assigned an MOR CS3 commercial mortgage special servicer ranking to 3650 REIT Loan Servicing, LLC (3650 Servicing or the Company), a wholly owned subsidiary of 3650 REIT Holding Company LLC (3650 REIT Holdings), which is a privately held registered investment advisor owned by 3650 Holdings L.P. The trend on the ranking is Stable.

3650 Servicing serves as a special servicer for commercial mortgage-backed securities (CMBS) transactions in which 3650 REIT Holdings has controlling positions. In addition, 3650 Servicing serves as a special servicer for a third-party originator and for unsecuritized loans that are held in various pooled-investment vehicles managed by 3650 REIT Holdings.

The assigned ranking further reflects the following considerations:

-- 3650 Servicing’s experienced managers and staff collectively having solid backgrounds in special servicing, including CMBS compliance requirements, loan underwriting due diligence, deal structuring, and property development/repositioning.

-- The Company’s relatively low employee turnover rates for the past few calendar years and workload levels indicating that the Company has sufficient capacity to handle additions to its special servicing portfolio.

-- 3650 Servicing’s organizational structure having separate asset management teams that, while being responsible for bridge/event-driven assets and stable cash flow/single asset-single borrower loans, also assist in performing other functions, including property underwriting, investment due diligence, and property management.

-- The Company’s limited asset resolution history where only a few loans have required special servicing intervention and no management of any real estate owned properties to date.

-- 3650 Servicing’s technology capabilities, which are based on a cloud computing environment, and acceptable practices for data backup, security, and associated testing.

-- Policies and procedures that denote controlled and proactive CMBS special servicing, including loan workout analytics, investor reporting, and interaction with master servicers. 3650 Servicing also demonstrates established practices for portfolio surveillance and handling borrower consent requests.

-- The Company’s audit regimen that includes annual Regulation AB attestation, and a third-party audit of loan files and transactions to test controls, procedures, and operating efficiencies annually.

As of December 31, 2023, 3650 Servicing was a named special servicer on 402 loans with an aggregate remaining unpaid principal balance of $14.4 billion involving 16 CMBS securitizations (including seven single-asset/single-borrower transactions) and 39 loans in its affiliate’s investment management portfolio. Approximately 88% of the transactions in which the Company was the named special servicer had first-loss bond positions that were owned by an affiliate company.

The December 31, 2023, active special servicing portfolio contained three loan positions with a combined unpaid principal balance of approximately $124.4 million. All three loans were from CMBS/securitized transactions with one $58.1 million loan being supported by 14 retail properties and the remaining two loans involving office space.

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

Morningstar DBRS 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 (August 23, 2023), https://dbrs.morningstar.com/research/419592.

For more information on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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