Overview
- LNR Partners LLC is a market leader in CMBS and commercial real estate special servicing and debt investing, and a subsidiary of Starwood Property Trust Inc, a commercial mortgage REIT.
- We affirmed our overall STRONG ranking on LNR Partners LLC as a commercial mortgage loan special servicer.
- The ranking outlook is stable.
NEW YORK (S&P Global Ratings) May 30, 2023--S&P Global Ratings today affirmed its STRONG ranking on LNR Partners LLC (LNR) as a commercial mortgage loan special servicer.
LNR, which is headquartered in Miami Beach, Fla., is a subsidiary of Starwood Property Trust Inc. (SPT). SPT is a publicly traded commercial mortgage REIT that focuses on originating and investing in commercial mortgage loans and other commercial real estate-related debt investments.
The ranking outlook is stable.
Our ranking reflects LNR's:
- Experienced and tenured senior managers and asset management staff, as well as its well-defined organizational structure;
- Well-automated technology systems, which include a proprietary asset management system that supports the company's platform and allows for efficient leveraging of its operations;
- Effective internal controls, including well-detailed policies and procedures for special servicing operations and a high degree of workflow and process automation for asset management activities;
- A highly effective analyst training program;
- Robust surveillance practices; and
- Demonstrated track record and ability to successfully resolve a high volume of defaulted CMBS loans and manage real estate-owned (REO) assets of all levels of complexity.
Since our prior review (see "Servicer Evaluation: LNR Partners LLC," published Jan. 5, 2022), the following changes and/or developments have occurred:
- LNR's named special servicing portfolio increased to 182 securitized transactions from 158; and the underlying collateral increased to 7,194 loans with an unpaid principal balance (UPB) of $112.3 billion as of Dec. 31, 2022, compared with 5,501 loans with a UPB of $81.5 billion as of June 30, 2021.
- LNR's active special servicing portfolio, which is among the industry's largest, had a UPB of approximately $5.3 billion as of Dec. 31, 2022--a 41.4% decrease from $9.1 billion as of June 30, 2021.
- Loan volume declined 35.9% to $3.7 billion (126 loans) from $5.8 billion (225 loans), and the REO portfolio shrunk over 50.0% to $1.6 billion (76 properties) from $3.3 billion (158 properties) because loan resolution and REO disposition activity far outpaced new loan transfers, despite the meaningful increase to LNR's special servicing appointments.
- Since mid-2021, LNR resolved 193 loans with an aggregate UPB of $4.2 billion, including 97 loans with a UPB of $2.8 billion that were returned to the master servicer.
- Management reduced its annual training hour requirement to 22 hours from 40 hours and met its lowered target in 2022, with employees averaging 32 hours. The lowered target is an overall average and is mindful of the training hours required for different positions, depending on the role.
- LNR discontinued using the third-party vendor application Financial Industry Computer Systems (FICS) and replaced it with its own proprietary LPAMS system. LPAMS now represents the internal core system LNR uses to reconcile with master servicers and provide posting instructions.
- In January 2022, LNR relocated its Miami Beach office to a new 144,430 sq. ft. office building within Miami Beach that also contains SPT's headquarters.
The ranking outlook is stable. LNR's asset manager staffing remains at levels that, in our view, allow for the handling of meaningful incremental volume, which is likely in 2023, given the expected refinancing challenges in the industry. As of Dec. 31, 2022, LNR's loan asset managers handled approximately 5.5 loans on average, and REO asset managers were responsible for 6.3 REO properties an average. Should it need additional staff to handle the expected influx of maturity defaults in 2023 ($9 billion of the portfolio matures in during the year), we expect management to initially look elsewhere in the company before recruiting from the outside, much like the successful approach it adopted during the pandemic.
The financial position is SUFFICIENT.
Related Research
- Select Servicer List, May 5, 2023
- Starwood Property Trust Inc. May 27, 2022
- Servicer Category Descriptions Expanded And Revised, Feb. 28, 2022
- Servicer Evaluation: LNR Partners LLC, Jan. 5, 2022
- Servicer Evaluation Spotlight Report™: Environmental, Social, And Governance Factors Have Consistently Powered Our Servicer Evaluation Rankings, Nov. 16, 2020
- Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019
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, Englewood + 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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