“As the economy turns,” more banks will want to enter the commercial real estate construction and small balance CRE lending space, he says. To do it correctly, they will need “substantially more hands on monitoring, cash management, disbursements, site inspections,” and other services than is required for a standard collection effort.
Competition is fueled by an equally active traffic towards third party and in-house servicing.
The trend is bound to generate new demand for niche market expertise, local knowledge and experience, he explained. Banks that are new to the CRE market are looking for services that comply with FDIC and OCC requirements, offered by trusted entities that are monitored by the rating agencies. “Regulators will be paying close attention to banks re-entering this space,” he said, so finding the right third-party service provider is essential.
Sabal is expanding into third party servicing, special servicing and construction loan administration nationwide. The Newport Beach, Calif.-based diversified financial services provider opened a new subservicing business division that will benefit from the firm’s expertise with large to midsize CRE loan portfolios gathered during years of specializing in “servicing significant private equity investors and regulatory agencies,” Jackson said.
Sabal offers performing loan asset servicing and special servicing of nonperforming loans in varying degrees of default with a focus on distressed debt. Since its inception in 2009 the firm has managed nearly $6 billion in real estate and land assets. Banks and private equity returning to lending, and investing, have the option to build it out or seek established, scale third-party providers to support their business, he said.
Sabal is counting on its “deep real estate investment history” over years of investing in leading-edge markets, “plus the technology and infrastructure already in place.” He expects Sabal will grow as the market returns.
Securing the tools to do the job efficiently means carefully selecting technology and staff, bringing in experts with experience in managing complex commercial real estate transactions and construction projects for homebuilders, “plus institutional monitoring, reporting and oversight.”
The decision to expand into the third-party servicing market now is a natural extension to Sabal’s long-time focus on investing mainly in CRE and builder land assets, he said, responding to demand for competitive operational efficiencies from various firms that are entering the market now.
A good example, he recalled, is an equity source that started funding CRE loans, but had no capability to perform loan draws, cash management, investor reporting, or other services, while the operating partner complained “the project performance was being damaged by the inability to get good service,” at the back office.
Real estate veteran Vartan Derbedrossian, who will head Sabal’s third-party servicing office in Pasadena, Calif., brings 15 years of experience in loan servicing, retail banking, asset management, liquidation management, risk management, policy administration and lending operation. The firm’s chief financial officer, Ron Warwick, a 34-year commercial real estate lending veteran, also will play “a significant role” with the new operations.
The third-party servicing division offers primary servicing and special servicing of commercial real estate, acquisition development and construction loans. In addition, it will provide construction loan administration and risk management services from start to finish, at the national level. The process includes document and cost reviews followed by construction and budget monitoring, and disbursement risk administration assessments through lien searches, title updates and reporting.
Sabal’s servicing operations are supported by a scalable technology platform designed to facilitate the servicing of loan portfolios of all sizes. The new business unit will use the platform to service large loan portfolios and manage loan default risk for lenders, banks, investment funds and insurance companies.
It marks the expansion of the firm’s platform “to serve the broader national marketplace,” Jackson said. He plans to leverage the infrastructure and expertise of the company to benefit from new market opportunities since the Sabal platform has scale and is already operating nationwide and in Europe.
In the past Sabal focused on investors, now the focus is on third-party clients. ”Any investment bank looking to participate in the market” represents an expansion opportunity for Sabal, he said.