News

Our rankings reflect C-III's:

• Seasoned and experienced management team and staff;
• Good leverage of technology systems;
• Effective staff training;
• Strong audit, compliance, and quality control environment;
• Substantial and efficient resolution track record of specially serviced loans and real estate-owned (REO) assets based on volumes and duration; and
• Solid operating history, despite its modest scale and reduced depth in primary servicing, including limited investor diversity concentrated in an interim/pre-securitization loan book.

Since our prior review (see "Servicer Evaluation: C-III Asset Management LLC," published Feb. 28, 2017) the following changes and/or developments have occurred:

• In July 2017, the prior president of C-III resigned for personal reasons; the chief operating officer absorbed his responsibilities and title.
• Compliance and internal audit for C-III was restructured in July 2017 to report directly to C3CP and is now functioning as a designated independent internal audit and compliance group. The Director of the group, who reports to C3CP's Chief Compliance Officer, is supported by members of C3CP's compliance department and a member of C-III's administrative department.
• The compliance and internal audit department implemented a risk assessment and annual internal audit plan for C-III in the first quarter of 2018.
• In March 2018, in conjunction with an involuntary reduction in force of 27 special servicing personnel, the loan and REO asset managers and associated assets were redistributed. The restructure also led to the consolidation of the loan team to one senior group leader that reports to the senior managing director.
• Overall special servicing headcount decreased to 58 full-time employees compared with 100 as of Dec. 31, 2016, in response to a reduction in the portfolio.
• The senior vice president of investor reporting within primary servicing added the role of loan operations manager with direct supervision of tax, insurance, and new loan setup in order to streamline operations and enhance the control environment.
• C-III relocated its staff to different suites within the same office building in Irving, Texas; during that move, the secondary data center room relocated to the Allentown, Penn. data center.
• C3CP established a vendor management program, which utilizes a web-based platform, to address information security risk in vendor engagements.
• C-III created and documented a formal IT operations policy to provide clarity of operational control objectives and alignment to the National Institute of Standards and Technology series of cybersecurity controls.
• The number of deals in C-III's named special servicing portfolio decreased to 125 from 140 since our last review. At the same time, the underlying collateral declined to $20.8 billion (1,674 loans) of unpaid principal balance from $60.5 billion (approximately 4,700 loans), largely due to the substantial run-off of maturing loans from pre-crisis deals.
• Active special servicing volume declined to $4.8 billion (117 loans; 147 REO loans) from $9.7 billion (322 loans; 154 REO loans) as resolution activity has far outpaced new loan transfers.

The outlook for the primary servicer ranking is revised to stable from negative. C-III's experienced staff continues to conducts its primary servicing operations in a controlled manner. Although the scale of the business and the associated staffing continues to be modest following the 2015 termination of a subservicing agreement with its then largest client, we believe management remains committed to the platform as evidenced by an increase in volume to $11.7 billion (267 loans) compared with $4.5 billion (185 loans) as of our prior review.

The outlook for the special servicing ranking remains stable. Despite a recent reduction in force that accompanied a substantial decline in its defaulted loan volume, C-III did not experience any degradation of its special servicing team's average experience and tenure levels since our prior review. While we anticipate further asset management staff reductions before year's end, we expect C-III to maintain core staff levels as loan counts fluctuate as well as continue to invest in systems and other resources necessary to manage its portfolio according to industry standards.

The financial position is SUFFICIENT.

RELATED CRITERIA

• Criteria - Structured Finance - Servicer Evaluations: Revised Criteria For Including RMBS, CMBS, And ABS Servicers On Standard & Poor's Select Servicer List, April 16, 2009
• Criteria - Structured Finance - Servicer Evaluations: Servicer Evaluation Ranking Criteria: U.S., Sept. 21, 2004

RELATED RESEARCH

• Select Servicer List, Sept. 26, 2018
• Servicer Evaluation: C-III Asset Management LLC, Feb. 28, 2017