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Rialto Capital Advisors ABOVE AVERAGE Commercial Mortgage Servicer Ranking Outlook Revised To Positive

Overview

  • Headquartered in Miami, Rialto Capital Advisors LLC is the special servicing subsidiary of Rialto Management Group, an integrated investment management and asset management platform.
  • We affirmed our overall ABOVE AVERAGE ranking on Rialto Capital Advisors LLC as a commercial mortgage loan special servicer.
  • We also revised the ranking outlook to positive from stable.

NEW YORK (S&P Global Ratings) Sept. 14, 2021--S&P Global Ratings today affirmed its ABOVE AVERAGE ranking on Rialto Capital Advisors LLC (Rialto) as a commercial mortgage loan special servicer. At the same time, we revised the ranking outlook to positive from stable.

Our rankings reflect Rialto's:

  • Experienced and stable senior management team;
  • Sound audit, compliance, and control environment;
  • Well-defined and effective borrower request, loan workout, and real estate owned (REO) procedures and process flows;
  • Active participation in CMBS market as a B-piece buyer (through its affiliate);
  • Good leverage of a proprietary special servicing technology system that provides strong controls;
  • Comprehensive employee training and development; and
  • Growing track record of special servicing defaulted CMBS loans and REO assets.

Since our prior review (see "Servicer Evaluation: Rialto Capital Advisors LLC," published May 27, 2020), the following changes and developments have occurred:

  • Rialto's named CMBS special servicing portfolio increased to 135 transactions totaling $109.2 billion in unpaid principal balance (UPB) from 121 transactions totaling $106.7 billion in UPB.
  • Rialto continued to strengthen its technology capabilities to include further enhancements to Appian and workflow automation across the platform.
  • Rialto accelerated its staffing plan during the early days of the COVID-19 pandemic to address the increased volume of borrowers seeking payment relief. As a result, its full-time employees increased more than 38% to 108 in 2020. However, Rialto reported 22 departures (a 20.4% turnover rate) during the first half of 2021, resulting in a June 30, 2021, headcount of 97.
  • Rialto resolved an aggregate principal balance of approximately $4.8 billion across 278 CMBS specially serviced loans, including $3.2 billion (169 loans) that were returned to the master servicer largely via modification or forbearance agreement and $732 million (57 loans) that were resolved via foreclosure or deed-in-lieu of foreclosure.
  • Rialto's active CMBS portfolio increased significantly to nearly $9.9 billion (562 assets) as of June 30, 2021, from approximately $2.5 billion (176 assets) as of Dec. 31, 2019, though it reached a peak level of more than $10.8 billion (612 assets) as of Dec. 31, 2020.
  • In 2021, the company established a training committee of associates from across the platform. This group holds dynamic training sessions that cover basic to complex concepts from an asset management and organization perspective.
  • Rialto hired a director, an executive with over 30 years of industry experience, to oversee CMBS compliance. This director replaced the prior compliance officer who joined a competitor in 2020.
  • Rialto implemented its business continuity plan due to the COVID-19 pandemic in March 2020. Management reported that there were no disruptions to the company's operations or data facilities, and its staff largely operated remotely over the following year with some employees gradually returning to the office beginning in March 2021.

The ranking outlook is positive. The positive outlook reflects Rialto's successful transition under the new ownership group that acquired the company in late 2018. The transition included efforts to replace the former parent company's technology and internal audit functions, while simultaneously enhancing the compliance function within the asset management and servicing units. Management has indicated that its 2021 staffing plan includes increasing its mid-year headcount substantially, with plans to add 30 full-time employees to reach 127 (excluding those dedicated to its Quantum Servicing subsidiary).

A ranking upgrade could occur if the company continues to perform well as its strengthened internal control regime matures and demonstrates its ability to retain talented asset managers and execute on its staffing plan to successfully resolve its nearly $10.0 billion active portfolio, which had grown from $2.5 billion at our prior review.

The financial position is SUFFICIENT.

Related Research

This report does not constitute a rating action.

Servicer Analyst:Steven Altman, New York + 1 (212) 438 5042;
steven.altman@spglobal.com
Secondary Contact:Benjamin Griffis, Centennial + 1 (303) 721 4672;
benjamin.griffis@spglobal.com
Analytical Manager, Servicer Evaluations:Robert J Radziul, New York + 1 (212) 438 1051;
robert.radziul@spglobal.com

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