Morningstar DBRS Confirms Servicer Rankings for Midland Loan Services; Trend for Master Servicer Ranking Remains Positive

DBRS, Inc. (Morningstar DBRS) confirmed its MOR CS1 commercial mortgage primary servicer and special servicer rankings and its MOR CS2 commercial mortgage master servicer ranking for Midland Loan Services, a division of PNC Bank, N.A. (Midland or the Company). The trends for the primary servicer and special servicer rankings remain Stable. The trend for the master servicer ranking remains Positive.

Midland, as one of the largest-volume commercial mortgage servicers, manages a diverse and complex portfolio. The Company has a highly experienced management team, solid professional depth, and thorough asset administration practices. The operating structure, which Midland revamped in 2022, appears to be working well to promote operating synergies and facilitate managerial oversight. The rankings also collectively recognize the Company's strong and continually improving technology, easing workload ratios, and comprehensive audit regimen. However, the latest Service Organization Controls (SOC 1) report, issued in November 2023, rendered a qualified opinion principally because of some bank account titling exceptions and procedures that Midland subsequently rectified. All other audit results have been satisfactory over the past two years.

As a master servicer, Midland has effective practices for advancing and determining recoverability and is accomplished with the reporting requirements for commercial mortgage-backed securities (CMBS). It also has proactive subservicer oversight, including a robust audit program. The Positive ranking trend reflects Midland's continued efforts and progress to increase its investor reporting and remitting accuracy. Midland expects its subservicer remittance tracking tool, which it introduced in 2023, to assist in this effort. The master servicer ranking trend also considers the SOC 1 report along with Midland's corrective actions.

Midland should continue to serve as a highly effective special servicer for CMBS and other third-party assignments based on its leadership team, asset managers' experience, asset recovery record, procedural controls, and technology capabilities.

As of June 30, 2024, Midland's total servicing portfolio contained 20,759 loans with an aggregate unpaid principal balance (UPB) of $519.54 billion. It was a CMBS primary and/or master servicer for 8,780 loans with an aggregate UPB of $182.74 billion involving 601 transactions. The total servicing portfolio included 1,067 single-family rental (SFR) loans with an aggregate UPB of $53.26 billion, which were mostly contained in securitized transactions. Midland also serviced seven commercial real estate collateralized loan obligation (CRE CLO) transactions collectively containing 180 loans with an aggregate UPB of $7.26 billion .

As of June 30, 2024, Midland was a named special servicer for 3,969 loans with a UPB of approximately $176.51 billion involving 420 transactions. This total mainly included CMBS, Freddie Mac, SFR, and CRE CLO transactions. As of June 30, 2024, Midland's active special servicing portfolio had a total UPB of $6.34 billion consisting of 185 assets (183 in securitizations) involving 182 loans (10 non-real estate) and three real estate owned assets.

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, 2024), https://dbrs.morningstar.com/research/438283.

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

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