DBRS Morningstar Confirms Sabal Capital Partners’ Commercial Mortgage Primary Servicer Ranking, Lowers Special Servicer Ranking

DBRS, Inc. (DBRS Morningstar) confirmed its MOR CS2 commercial mortgage primary servicer ranking for Sabal Capital Partners, LLC (Sabal or the Company). DBRS Morningstar also lowered its commercial mortgage special servicer ranking for Sabal to MOR CS3 from MOR CS2 and changed the trend for the ranking to Stable from Negative. The trend for the primary servicer ranking remains Stable.

Sabal is majority owned by Stone Point Capital LLC through its investment funds. However, on October 3, 2021, Regions Bank announced it had entered into an agreement to acquire Sabal as a wholly owned subsidiary and expects to close the transaction by YE2021. The acquisition will include Sabal’s entire lending and servicing platform but will exclude its affiliated investment management platform, SCP IM, LLC. Sabal expects to continue its business activities as usual and retain all its existing processes, technology, and employees, except for its chief financial officer and chief executive officer. However, the chief executive officer is to remain in an advisory role under a two-year agreement. While the transaction could lead to more servicing opportunities for Sabal, DBRS Morningstar will watch for any resulting impact on the Company’s operations and performance in the months ahead.

The confirmed primary servicer ranking recognizes Sabal’s extended record as an adept servicer for multifamily, and mainly smaller-balance, loans for government-sponsored enterprises (GSEs), especially for Freddie Mac. With year-over-year servicing growth, Sabal has become one of Freddie Mac’s most active seller/servicers for the GSE’s small-balance program and corresponding securitizations. In 2019, Sabal expanded its lending and servicing to include small-balance Fannie Mae loans and small-to-midsize conduit loans of various property types for commercial mortgage-backed securities (CMBS) transactions. In March 2020, the Company became the servicer and special servicer on its first CMBS transaction, which consisted of Sabal-contributed loans. In 2020, Sabal obtained its Freddie Mac conventional lender license, and, over the past year, Sabal has become a servicer on several Freddie Mac K-Series deals.

Sabal’s operating strengths for primary servicing include its solidly experienced professional staff and management team, low employee turnover, and proactive and controlled asset administration. Sabal also has a multicomponent internal audit and compliance program. The Company’s well-integrated technology applications provide mostly automated transaction processing and reporting, including an effective proprietary borrower portal.

For special servicing, Sabal has sound practices and experienced staff, including its demonstrated ability to redeploy former asset managers. The technology platform suitably addresses CMBS and other special servicing work as well. DBRS Morningstar further acknowledges Sabal’s strong performance in its earlier years liquidating a high volume of assets in Federal Deposit Insurance Corporation-risk sharing, nonperforming-loan, and other distressed-debt transactions. The Company also has performed well during the Coronavirus Disease (COVID-19) pandemic completing forbearances and granting borrowers other relief outside of formal special servicing transfers.

The lowered special servicer ranking principally reflects Sabal’s reduced operational scale and modest asset resolution activity after concluding all its legacy distressed-debt transactions. Sabal’s operating position is commensurate with its current and near-term projected needs. The credit strength of its managed portfolios also bodes well for investors. However, Sabal’s low activity level limits the ability to assess performance, especially on a comparative basis, with those special servicers managing and resolving a greater volume of challenged CMBS assets. Additionally, while Sabal anticipates more special servicing assignments involving conduit CMBS loans, its experience to date is still limited to one transaction.

As of June 30, 2021, Sabal’s servicing portfolio contained 1,642 loans with an unpaid principal balance (UPB) of $4.72 billion, up from 1,444 loans and a $4.24 billion UPB as of June 30, 2020. By count, multifamily loans comprised 92% of the servicing portfolio. Approximately 85% of the portfolio, or 1,401 loans, were Freddie Mac-sponsored loans, including 1,321 in 61 securitized transactions. The remainder of the serviced portfolio included 59 loans ($397.0 million UPB) in the conduit CMBS transaction, 25 loans warehoused for CMBS, 151 Fannie Mae loans, two loans for other investors, and four balance sheet loans.

As of June 30, 2021, Sabal was the named special servicer for 920 loans with a UPB of $2.68 billion covering 19 Freddie Mac small-balance securitizations and the CMBS transaction. Sabal was the primary servicer for all these transactions. The active special servicing portfolio contained 17 loans and one real estate owned (REO) property with a combined $56.0 million UPB. The securitized portion contained 16 loans (14 Freddie Mac and two conduit CMBS lodging) and one Freddie Mac REO property with a combined $55.0 million UPB.

All rankings are subject to surveillance, which could result in rankings being raised, lowered, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar North American commercial mortgage servicer rankings are not credit ratings. Instead, they are designed to evaluate the quality of the parties that service commercial mortgage loans. Although the servicer’s financial condition contributes to the applicable ranking, its relative importance is such that a servicer’s ranking should never be considered as a proxy of its creditworthiness.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American Commercial Mortgage Servicer Rankings (September 3, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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