CRE and multifamily debt outstanding grew from $970 billion in 1994 to a peak of $3.4 trillion in 2007. Volume currently sits at approximately $3.07 trillion, said Stacey Berger, executive vice president of PNC Real Estate and its Midland Loan Services division.
Commercial mortgage-backed securities debt outstanding accounts for about $673 billion of that total, down from a peak of $800 billion in 2007. The decline in CMBS debt has lessened the top 10 servicers’ market share to 76%, from a peak of 80% in 2010.
But while the six largest servicers control 65% of the total servicing market, each servicer has a different strategy, reflected in the diversity of CRE debt types in their portfolios.
Alan Reese, director and head of corporate operations at Berkeley Point Capital explained that for a $30 billion portfolio of government-sponsored enterprise multifamily loans like his company’s, the firm has to originate $4 billion a year in new loans just to keep pace with the average 7.5 year lifespan of a typical multifamily mortgage. But there’s more competition among originators that are putting more emphasis on originating GSE loans that are considered safer in today’s environment.
“It’s made our ability to tread water much more difficult,” he said.
To combat challenges like these, performing CRE mortgage servicers are now evolving to conduct specialty and default servicing for outside companies.
Berger’s company has developed much its own technology for the past 15 years, which provides an additional revenue stream and cost saving.
“We’ve been able to improve operating efficiency through the use of technology and by selling technology to third parties, we’ve increased the size of our user base and the overall cost of the technology and continue to develop and improve it,” he said.
In addition, PNC Real Estate has taken on more distressed debt servicing, which has allowed the company to retain and grow its staff. But it’s also aware that the heightened level of distressed CRE debt won’t stay elevated forever.
“What’s going to be a challenge for us is as the distressed debt runs off, what will replace that business?” Berger asked.