Morningstar DBRS Confirms Mount Street US Servicer Rankings; Changes Trend for Primary Servicer Ranking to Negative

DBRS, Inc. (Morningstar DBRS) confirmed its MOR CS2 commercial mortgage primary servicer and MOR CS3 commercial mortgage special servicer rankings for Mount Street US (Georgia) LLP (MSUS or the Company). Morningstar DBRS also changed the primary servicer ranking trend to Negative from Stable. The trend for the special servicer ranking remains Stable. MSUS is an indirect operating subsidiary of UK-based Mount Street Group Limited (Mount Street).

The confirmed primary servicer ranking recognizes MSUS' nearly seven-year performance record servicing highly structured, often syndicated, large loans involving intensive portfolio management. MSUS thus far only services for banks and institutional lenders. Although MSUS has expanded its scope of services for some clients, certain portfolio management tasks are not in its mandates.

The effective audit program encompasses Service Organization Control examinations for primary servicing, Regulation AB attestations for special servicing, and an internal audit program that restarted in late 2023 after a brief pause. MSUS' technology includes well-recognized purchased applications combined with proprietary tools to support reporting, workflow management, treasury functions, and client/borrower web portals. MSUS has additional initiatives underway to streamline and improve its technology. A Mount Street technology team oversees comprehensive practices for prudent data security, backup, and testing.

MSUS has an experienced primary servicing team. However, it had significant employee turnover in 2024, which included some senior managers and the chief operating officer, who had previously served as office head because of earlier management departures. In response, the Company leveraged employees' cross-training skills and hired a consultant to support performing-loan asset management. MSUS also hired a highly experienced industry veteran in late 2023 to head MSUS, whose role later changed to overseeing corporate operations and process-improvement initiatives. In the latter months of 2024, Mount Street's chief of European operations directly oversaw MSUS. Most recently, MSUS externally hired a managing director, who brings more than 20 years of executive-level industry experience, to lead the Company.

The negative trend for the primary servicer ranking reflects MSUS' challenges with employee turnover, especially at the departmental and senior management levels. The average industry experience for the performing-loan asset management team, while still solid, also has been negatively affected by turnover. Morningstar DBRS will monitor MSUS' ability to demonstrate better operational stability under its new leadership. Additionally, Morningstar DBRS observed that MSUS' investor reporting/remitting accuracy rates, while still generally high, decreased over the past year. The Company also received and analyzed borrowers' full-year property operating statements at a slower pace in 2024.

MSUS obtained its first commercial mortgage-backed securities (CMBS) special servicing assignments in Q3 2021. MSUS' core three-person asset manager team is highly experienced. The Company conducts special servicing with controlled and diligent procedures, which it strengthened over the past year. A portfolio administration team handles the related surveillance and investor reporting acceptably. MSUS also recently commissioned its first real estate owned (REO) property manager audit. Morningstar DBRS will continue to monitor the Company's progress in building its performance record.

As of June 30, 2024, MSUS serviced 520 loan positions with an aggregate unpaid principal balance (UPB) of approximately $22.32 billion. By investor type loan count, the portfolio was 70% bank clients and 30% other third-party investors.

As of June 30, 2024, MSUS was the named special servicer on 191 loan positions with a total UPB of $8.13 billion involving 29 CMBS transactions, which included four conduit-type issuances. The active special servicing portfolio contained 33 CMBS loan positions (10 based on asset relationships) and 12 CMBS REO properties (three assets by relationship) with a combined $939.1 million UPB. Cumulatively, through June 2024, MSUS had resolved eight loans and sold three REO properties.

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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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