Fitch Affirms Berkadia's Commercial Servicer Ratings

NEW YORK--()--Fitch Ratings affirms the commercial real estate servicer ratings for Berkadia Commercial Mortgage LLC (Berkadia) as follows:

--Commercial primary servicer at 'CPS1';

--Commercial master servicer at 'CMS2'.

The primary and master servicer ratings reflect Berkadia's strong internal control environment over combined servicing operations in the U.S. and Hyderabad, India, experienced and tenured domestic and off-shore management team, as well as the company's continued dedication to maintaining strong servicing technology. Berkadia migrated to McCracken Strategy release 17.6 in October 2015 after completing an upgrade to Strategy 17.3 in early 2015 from a highly customized version of V12B.

The master servicer rating reflects run-off in the master servicing portfolio, limited oversight of primary subservicers, and advancing capabilities. The ratings also reflect Fitch's financial assessment of the company; while not publicly rated, Fitch found the company's financial viability adequate to support the servicing platform, including servicer advances under stressed scenarios.

Berkadia is a joint-venture between Berkshire Hathaway and Leucadia National Corporation and maintains three business lines: commercial mortgage banking, investment sales and research, and commercial mortgage servicing (including serving as a third-party outsource provider of CRE servicing functions). Berkadia originates commercial mortgage loans for government-sponsored entities (GSEs), third parties (such as life companies, private investors and institutional banks), CMBS transactions, as well as for its own portfolio.

Berkadia employs 72% (the largest percentage among servicers rated by Fitch) of its servicing staff through Berkadia Services India Private Limited (Berkadia India), the company's captive off-shore operation. Berkadia extensively trains off-shore employees and frequently makes training visits to India as well as trains key Indian personnel in the U.S. Fitch notes that after increasing headcount over the past few years to coincide with portfolio growth, Berkadia's employee base has decreased as its portfolio has experienced run-off.

Legacy CMBS loans continue to be the primary driver of overall run-off in Berkadia's servicing portfolio which the company attempts to offset through increased originations as well as subservicing for third-party servicer clients. Since 2013, the company's total servicing portfolio experienced 19% run-off by loan count; the CMBS portfolio declined by 39%. Berkadia continues to add CMBS loans primarily in Freddie Mac K-series transactions as primary servicer reporting to an external master servicer.

As of March 31, 2016, Berkadia's primary servicing portfolio consisted of 22,903 loans totaling $225 billion, including 5,346 CMBS loans totaling $54.9 billion. Also as of March 31, 2016, Berkadia was named master servicer on 127 CMBS transactions encompassing 3,979 loans totaling $35.4 billion, down 47% (by loan count) from year end 2013. While the company continues to experience run-off in its master servicing portfolio, Berkadia selectively bids on new transactions (including single borrower and large loan floaters). Fitch notes that the CMBS master servicing market is highly competitive and concentrated among four active master servicers. Berkadia's master servicing portfolio is heavily concentrated in legacy CMBS deals which account for 91% of the portfolio.

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

Applicable Criteria

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

https://www.fitchratings.com/site/re/884140

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

https://www.fitchratings.com/site/re/735382

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1010790

Endorsement Policy

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

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Contacts

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, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

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, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com