As the CMBS industry was coming into its own, I spent most of the 1990s working for what was then a top-3 commercial mortgage loan servicer in terms of assets under management (“AUM”). Thanks to our largest client, an innovative Japanese investment bank, we went from being a small division of a white shoe life company to a highly rated stand-alone master servicer with over $60 billion of AUM in a matter of a few years. While I was there, a lot of infrastructure was built, legions of highly specialized staff were hired and a successful commoditized approach to servicing was born. When we purchased CMBS master servicing strips our first move was to buy out the smaller primary servicers who we deemed an impediment to that approach. It was a good run.
My next stop was a life company lender where we had 25+ relationships with many of those same servicers for which I was formerly responsible for “buying out” their CMBS servicing rights. It is while working there for fourteen years that I learned to appreciate the strengths of these boutique servicers almost none of which had AUM of greater than a few billion. While the quality of their work as a group certainly varied most delivered incredibly nimble service and treated the loans they managed for us as if they were the owner. The ability of these boutique servicers to know the borrowers, provide insight into the collateral and respond promptly to our ever-changing needs were constants.
In all fairness, the boutique approach for CMBS loans is totally overkill. The institutional variety of servicing is generally conducted by too-big-to-fail commercial banks who commoditize their efforts by marshaling vast resources. They deftly manage very large portfolios of loans owned by trusts that are inherently indifferent to the original personal business relationships in place when the loans were originated. They have surplus cash to advance expenses on behalf of the trusts. Despite the disgruntled borrowers the strength in numbers of the institutional CMBS servicer is undeniable. However, the skills of a strong boutique servicer are a great fit everywhere else in the commercial real estate mortgage industry…life companies, construction lenders, hard money lenders, real estate debt funds, hedge funds, pension funds, GSEs, credit unions, crowd funders, etc. The merit of a boutique servicer is in the scalability and customizable services. The best of the boutique servicers add value to their client’s bottom line while freeing up their client’s personnel to focus on making great investment decisions.
Because many boutique servicers have related entities that offer complementary real estate services, understanding the underlying collateral of each commercial mortgage loan is in their DNA. They have capabilities in place to effectively manage even the most structured real estate portfolio loan. High employee satisfaction at the boutique servicers is often reflected in the long tenures of their personel and many of them bring previous experience from institutional servicers. Their approach is steadfastly “hands on.” Servicing technology, democratized greatly over the last decade, is most often exactly the same as that used by the institutional servicers. Trusted property tax and insurance experts often assist boutique firms in the assessment of more sophisticated risks at no extra costs to the client. A final observation? The boutique servicers are very relationship-oriented leading to greater client and customer satisfaction.
Are you satisfied with your servicing and its related costs? If not, contact me and let’s find a solution. Essex Financial Services may just be the right call.