Fitch Affirms Rialto Capital Advisors Special Servicer Rating

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings affirms the commercial real estate special servicer rating of Rialto Capital Advisors, LLC (RCA) at 'CSS2'.

The special servicer rating reflects RCA's experienced and deep management team, robust asset management capabilities, its ongoing commitment to technology, and the financial condition of its ultimate parent, Lennar Corporation. The rating also reflects continued elevated turnover, due partly to reduced non-performing loan (NPL) volume, the limited nature of internal audit reviews, and less robust disaster recovery capabilities compared to highly rated servicers.

While overall turnover remains elevated at 18% (a trend in previous reviews), turnover has come down from 24%. Asset manager turnover was 13%, which compares favorably to other Fitch rated special servicers. RCA maintains a strong management bench as three senior and 52 middle managers average 14 years of industry experience. Additionally, RCA continues to invest in its special servicing technology, RCAMS, which Fitch believes is an effective tool to manage large volumes of defaults and monitor compliance.

RCA is the operating entity of Rialto Capital Management (Rialto) which was founded in 2007 as a real estate investment and asset management company focused on distressed real estate assets. Rialto is the sponsor of and an investor in nine private equity funds that target opportunistic investments in distressed loans and real estate and subordinate bonds in CMBS 2.0 transactions and mezzanine loans. The company also maintains a commercial real estate loan origination business to originate and securitize non-recourse CRE loans.

Historically focused on small balance NPLs, Rialto has transitioned to an active purchaser of controlling B-pieces and servicer of CMBS 2.0 transactions which make up 98% (by balance) of the company's total special servicing portfolio. At March 31, 2016, RCA was named special servicer on 64 CMBS transactions, up from 26 at Dec. 31, 2013. RCA's active special servicing portfolio continues to be weighted (89% by balance) towards non-CMBS, represented by NPL portfolios.

As of March 31, 2016, RCA was named special servicer on 4,854 CMBS loans totaling $64.9 billion and actively working out 25 defaulted CMBS loans totaling $163 million and three real estate owned (REO) assets with a UPB of $9.6 million. As of the same date, RCA was also named special servicer for 3,132 non-CMBS loans totaling $1.4 billion UPB and was actively working out 1,648 loans with a UPB of $1.1 billion and 1,747 REO with a UPB of $326.8 million.

The servicer rating is based on the methodology described in Fitch's reports 'Rating Criteria for U.S. Commercial Mortgage Servicers,' dated Feb. 14, 2014, and 'Rating Criteria for Structured Finance Servicers' dated July 1, 2016, available on Fitch's web site www.fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Rating Criteria for Structured Finance Servicers (pub. 01 Jul 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884140

Rating Criteria for U.S. Commercial Mortgage Servicers (pub. 14 Feb 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735382

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1008551

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160707005957/en/

Fitch Ratings
Primary Analyst
James Bauer
Director
+1-212-908-0343
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Adam Fox
Senior Director
+1-212-908-0869
or
Committee Chairperson
Christopher Bushart
Senior Director
+1-212-908-0606
or
Media Relations:
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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