CRE Consolidation Continues Apace

The theme of consolidation in the commercial servicing space continues, with all the major servicers adding to their portfolios at the end of 2007. According to the year-end rankings of commercial mortgage servicers by the Mortgage Bankers Association, Wachovia had the highest volume of primary and master servicing at $407.94 billion. Next on the list is Midland Loan Services/PNC RE Finance, with $268.55 billion.

In third, fourth and fith place respectively are Capmark Financial Group ($258.12 billion), Wells Fargo Bank ($175.6 billion), and KeyBank Real Estate Capital ($148.57 billion).

Looking back two years, to the end of 2005, it is clear that the top five list included these same top-ranked servicers, with all of them having added to their portfolios. Two years ago, Wachovia was at $233.18 billion, followed by GMAC (now Capmark) at $231.45 billion, Midland at $159 billion, Wells Fargo at $95.52 billion, and KeyBank REC at $84.93 billion. Three of these servicers have almost doubled their portfolios in the last two years. Capmark, which was bought out by private equity investors and has been in the throes of change, has seen minimal gain. And KeyBank REC has more than doubled its portfolio.

When it comes to servicing of commercial mortgage-backed securities (CMBS) loans (in which category the MBA's 2007 December rankings also includes servicing of assets in collateralized debt obligations (CDOs) and other asset-backed securities), Wachovia leads again ($291.2 billion), followed by Capmark Financial ($152.03 billion), Midland Loan Services ($147.42 billion), Wells Fargo ($134.59 billion), and Bank of America ($114.78 billion).

Two years ago, the leaders in this space were pretty much the same: Wachovia ($154 billion), Capmark ($129 billion), Midland ($104 billion), Wells Fargo ($67.57 billion), and KeyBank REC ($56.5 billion). Bank of America was sixth, with a $53 billion portfolio.

It's obvious that all the major servicers in this category have handily boosted their portfolios. This is a category that has gained tremendously in the last two years, thanks to a booming CMBS and CDO environment. CDOs provided a convenient outlet for all sort of assets and originators were originating as fast as the demand from CDOs required. Now that mortgage securitizations in general have been painted with the same brush as subprime mortgage securitizations, CMBS and CDO issuances are way off. CMBS spreads are so wide that conduit lenders are finding it difficult to compete with portfolio lenders. Investors are more wary of mortgage securitizations in general now and it is not clear when CMBS and CDO avenues are going to have more of a presence. In fact, CMBS issuance in January was at a standstill.

At the MBA's recent commercial real estate finance convention in Orlando, real estate lenders were not clear about when these securitized avenues are going to be back in the game. In the meantime, portfolio lenders have an advantage and have seen their business volume pick up. Therefore, servicers are likely to see more growth in their servicing of portfolio loans this year than in their CMBS/CDO servicing portfolios.

Another area of growth is in the servicing of Fannie Mae and Freddie Mac-backed loans, as well as Ginnie Mae and FHA-backed loans. These steady eddy lenders are picking up the slack from the absence of the CMBS conduits. Freddie Mac is also looking to have a firmer presence in the CMBS space by setting up a dedicated effort to aggregate multifamily loans and securitize them through dealers.

Other servicers in the top ten list, based on total primary and master servicing at the end of 2007, are: Bank of America ($129.72 billion), GEMSA Loan Services ($100 billion), Prudential Asset Resources ($57.97 billion), Washington Mutual Commercial Group ($56.66 billion0, and Deutsche Bank ($54.13 billion). (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/