First-loss piece buyers — also called B-piece buyers --  have historically also specially serviced these loans but today managing distressed commercial real estate loans is increasingly done by third party companies that aren’t holders of the CMBS loans, according to a Fitch Ratings report.  The new arrangement reduces conflicts that arise when the special servicer also holds a first loss position.  

Fitch expects continued interest in special servicer ratings and to a lesser degree primary servicer ratings in 2013.  Of the new servicers that Fitch rated in 2012, each has a different platform and market focus.

Two have significant CMBS positions, two are servicing non-performing transactions, one is a CDO manager and large loan special servicer, and one is a GSE (Freddie Mac).     

Of the new names buying first loss positions in CMBS, only Rialto holds a Fitch special servicing rating. Among the other B-Piece buyers are Eightfold Real Estate Capital, Raith Capital Management and Blackrock who were the largest buyers of CMBS B-pieces in 2012.  

By contrast, the so called ‘old cartel’ of B-piece buyers that doubled up as special servicers made up of LNR Partners, CWCapital, and C-III, weren’t active buyers  on the 81CMBS transactions issued in 2012 (totaling $66.6 billion). 

“The diversification these new special servicers bring with their varying expertise is good for the CMBS market and increases the number of options for investors looking for third party servicers,” said Adam Fox, senior director at Fitch in the report today.  

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