Fitch Ratings has affirmed CBRE Loan Services, Inc.'s (CBRE) commercial primary servicer rating at 'CPS1-' and assigned a Stable Rating Outlook.
RATING ACTIONS
Entity / Debt
Rating
Prior
CBRE Loan Services Inc
CMBS Primary Servicer
CPS1-
Affirmed
CPS1-
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Key Rating Drivers
The affirmation of the primary servicer rating reflects CBRE's long demonstrated history of servicing commercial real estate loans, experienced and tenured employees, low turnover, multifaceted internal control infrastructure, policies and procedures supplemented by detailed process maps, and robust technology infrastructure. The affirmation also considers full implementation of the company's new borrower portal with robust self-service functionality. CBRE also increased staffing with 77 employees added during the 12-months ending September 2022, offsetting departures and increasing employee count 29% to support portfolio growth.
CBRE is a wholly owned subsidiary of CBRE Capital Markets, Inc. (CCM), an indirect wholly owned subsidiary of CBRE Group, Inc. (CBG). CBRE is the U.S.-based commercial real estate (CRE) loan servicing operation of CBG and is related by common ownership to CBRE Loan Servicing Limited, the European servicing operation, which serviced 687 loans totaling GBP63.1 billion as of September 2022.
CBRE was originally formed as GEMSA in 2001 and changed its name following the internalization of GEMSA by CCM in December 2015, making CBRE a wholly-owned subsidiary of CBG. CBRE is an integral component of CCM's overall business plan as the company performs primary servicing for more than 14,000 CRE loans totaling $273.6 billion on behalf of third-party clients and parent company brokered loans. During 2021, CBRE originated $79 billion of commercial mortgage loans, for which it retained servicing for approximately $40 billion. CBRE acts as a third-party servicer for more than 90 clients comprising insurance companies, banks, GSEs and institutional lenders.
During the 12 months ending September 2022, turnover among primary servicing employees declined to 11%, from 14% the prior period, the vast majority of which were voluntary. The majority of CBREs' 252 employees are fully dedicated to primary servicing and located in the company's Houston headquarters. Senior managers average 30 years of industry experience and 21 years with the company, while middle managers average 18 and nine years, respectively. Employees completed an average of 44 hours of training during the 12 months ending September 2022.
CBRE maintains a strong technology infrastructure anchored by Strategy Version 19A and various proprietary applications. CBRE has not upgraded Strategy for several years, but it viewed recent enhancements as lacking material enhancements relative to their existing processes to justify the need. CBRE expects to adopt version 19F in Q2 2023 and version 20 later in the year. The company utilizes robotic process automation (RPA) and optical character recognition (OCR) tools to review borrower financial statements and rent rolls.
CBRE released new versions of its borrower and lender portals in May 2022, which includes new functionality to allow borrowers to upload required documents, submit reserve draw requests, and request payoffs among others. Further enhancements were introduced in October 2022 to allow on-line payments.
CBRE maintains high-level policies that outline servicing functions and are supported by detailed process maps that serve as step-by-step desktop procedures. Internal controls consist of management oversight, quarterly internal compliance reviews and formal internal audits performed by CBG every three years with the most recent audit completed in May 2021.
The most recent internal audit contained some non-material findings and suggestions for process improvements, all but one of which have been fully remediated. The final outstanding item will be addressed by a technology solution in Q2 2022. Quarterly internal compliance reviews reviewed by Fitch did not contain any material findings. Most recent SOC 1 and uniform single attestation program (USAP) audits also did not contain material findings.
CBRE maintains a robust, well-controlled primary servicing platform with highly developed technology that continues to evolve. The company outsources a portion of several servicing functions to a third party named Genpact (located in Gurugram, India). CBRE, through predecessor companies, was the first Fitch-rated servicer to utilize offshoring; the company has been working with Genpact for over 20 years and extended its contract through 2023.
CBRE expects to renew and extend the contract by June 2023, and the current contract includes a 12 months' notice to terminate clause mitigating any near-term disruption. The company has not had any instances of reporting restatements, errors, or late submissions during the 12-month period ending September 2022. Additionally, CBRE has not had any lapsed uniform commercial code (UCC) filings for nearly six years and tax penalties have been de-minimis.
As of September 2022, CBRE's total servicing portfolio comprised approximately 14,013 loans totaling $273.6 billion, having increased 41% by balance and 62% by loan count since YE 2020. Approximately 280 loans totaling $22.4 billion are scheduled to mature through September 2023. Historically, more than 95% of loans serviced by CBRE with pending maturities payoff on or prior to scheduled maturity. Non-securitized loans represent approximately 67% of the company's servicing portfolio by loan count and 73% by balance. Non-securitized servicing is performed on behalf of life insurance companies (81% by total loan count), GSEs (17%) and institutional investors (1%).
Additional information is available on www.fitchratings.com
CBRE GROUP, INC. 
