Fitch Ratings has affirmed KeyBank N.A.'s (dba KeyBank Real Estate Capital [KBREC]) commercial servicer ratings.

RATING ACTIONS

Entity / Debt

Rating

Prior

KeyBank N.A.

CMBS Master Servicer

CMS1

Affirmed

CMS1

CMBS Primary Servicer

CPS1

Affirmed

CPS1

CMBS Special Servicer

CSS1-

Affirmed

CSS1-

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VIEW ADDITIONAL RATING DETAILS

Key Rating Drivers

The affirmation of the primary and master servicer ratings reflects KBREC's continued dedication to maintaining and developing servicing technology, strong loan administration abilities including a robust, well-controlled primary servicing platform, solid subservicer oversight capabilities, as well as a long history servicing securitized and non-securitized loans.

The ratings also reflect continued elevated turnover as well as the company's experienced senior management team and deep management bench. The primary servicer rating also considers the limited number of loans outsourced to a third-party (5% by loan count) and the potential for a limited number of loans to be outsourced in the future based on the current shared services agreement which Fitch continues to monitor.

The affirmation special servicer rating reflects the company's ability to manage a high volume of defaulted loans with strong asset management technology, experienced asset managers, and strong policies and procedures for key special servicing functions. The rating also considers continued elevated turnover partially driven by declining specially serviced assets and mitigated by a lower assets to asset manager ratio compared to peers indicating excess capacity.

All ratings also reflect KBREC's strong technology environment focused on automation, controls, and continuous improvement, experienced senior management team, strong internal controls structured along the three lines of defense methodology, and financial condition of the parent company. Fitch maintains a long-term Issuer Default Rating (IDR) of 'A-'/Stable for the holding company KeyCorp as well as its subsidiary bank KeyBank N.A. as of November 2021.

KeyBank N.A.'s CRE lending and servicing platform does business as KBREC and is a division of the bank. KBREC provides master, primary, interim, special, portfolio syndication, collateralized debt obligation, line of credit and construction servicing for CRE loans originated by itself as well as third parties, primarily from Overland Park, KS.

The company's servicing portfolio includes securitized, government-sponsored entity, institutional investor and life company loans, among others. KBREC maintains a strong business plan underpinned by internal loan originations and a robust third-party servicing business for securitized and non-securitized loans on behalf of a diverse client base.

Single asset single borrower (SASB) transactions drove KBREC's recent securitized master and special servicer assignments. During 2021 through 1Q2022, KBREC was appointed as master servicer on 69 SASB transactions (64% of all assignments) and special servicer on 37 SASB transactions (29% of all assignments). The company's non-securitized portfolio continues to grow through new and expanded third-party client relationships as well as the bank's increasing focus on balance sheet originations.

KBREC's technology environment is highly developed, allowing for many automated processes with workflow controls. KBREC uses Strategy version 19F from McCracken Financial Services as its loan accounting system and the proprietary RECWeb system as its core servicing application, which centralizes primary, master and special servicing functions.

Dedication to continuous technology improvement is a strength. RECWeb was updated to track master servicing audit results year-over-year and to feed directly into a proprietary net present value model. The external borrower and investor portal, Key2CRE, was updated with improved user experiences for property searching and mapping and added datapoints for third-parties using API connections. KBREC is finalizing a FEMA API connection for natural disaster tracking and centralizing external CCR approval of special servicing actions in the portal.

Borrower website usage growth has been substantial as the number of enrolled borrowers is up to over 16,700 from 8,000 last review, representing approximately 89% of active loans which is the highest among large Fitch-rated primary servicers. KBREC continues to actively invest in robotic process automation and is working to implement a tool to extract data from insurance ACORD forms.

As of March 31, 2022, KBREC had 404 employees dedicated to primary and master servicing, up from 371 employees at Fitch's last review and down from 418 employees in 2020. The special servicing group's employee count as of March 31, 2022 increased to 33 employees from 29 employees last review and is in line with 37 at Fitch's 2020 review. KBREC maintains an on-call program to provide additional staffing resources, where part-time employees can work up to 20 hours a week. Currently, there are 14 employees in the on-call program. The increase in staff across primary and master servicing as well as special servicing supports KBREC's continued portfolio growth and partly mitigates the recent increase in overall turnover.

Overall turnover for primary and master servicing increased to 22% from 19% at Fitch's last review and 12% in 2020. Fitch notes that several Fitch-rated servicers have established satellite servicing offices in the Kansas City metro area, which has contributed to elevated turnover among all servicers in the market, but particularly large servicing operations such as KBREC. The majority of departures were in Overland Park and were concentrated at the staff level, partially mitigated by KBREC's strong and deep management bench. Additionally, accounting for internal transfers and on-call employees who departed, aggregate turnover would be 19%. Management turnover was 13%, which is up from 7% and 4% in 2021 and 2020, respectively, consisting of nine middle manager departures. Seven of the middle manager departures were voluntary while two were internal transfers.

Special servicing overall turnover increased to 23% from 18% and 16% at the last two reviews, consisting of seven voluntary departures. Asset manager turnover also increased to 46% from 17% and 26% during the same period, which appears high given the small size of the group. KBREC continues to maintain a bench of experienced asset managers with an asset to asset manager ratio 9:1, down from 16:1 last review, and below special servicing peers indicating excess capacity should loan defaults rise.

As of March 31, 2022, KBREC's total servicing portfolio consisted of 20,199 loans totaling $426.0 billion, up 30% by balance and 4% by loan count since YE 2020, reflecting a trend towards larger balance loans. KBREC was primary servicer for 15,046 loans with an unpaid principal balance (UPB) of $316.8 billion, including 6,496 securitized loans with a UPB of $176.5 billion and 8,550 non-securitized loans with a UPB of $140.2 billion. Additionally, the company was named master servicer for 408 securitized transactions, consisting of 9,439 loans totaling $253.7 billion and overseeing 29 third-party primary servicers responsible for 5,153 loans totaling $109.2 billion.

Also as of March 31, 2022, KBREC was named special servicer for 13,570 securitized loans totaling $188.4 billion within 354 securitized transactions, and actively special servicing 64 loans totaling $895.1 million as well as 13 REO assets totaling $505.5 million. KBREC was also named special servicer for 617 non-securitized loans with a UPB of $17.5 billion and actively special servicing 28 loans totaling $24.5 million plus three REO assets totaling $2.9 million.

Torchlight (CSS2), KeyBank National Association (CMS1) and Berkadia Commercial Mortgage, LLC (CMS2) as special servicer, master servicer and subservicer, respectively, are engaged in ongoing litigation matters regarding a loan in a 2007 vintage multiborrower CMBS transaction. The litigation matters concern the borrower's request to refinance the loan under a 2012 Loan Modification Agreement and its subsequent lawsuit against the Trust and servicers, certain loan modifications, and costs and expenses incurred in defending the lawsuits.

As of July 2022, the litigation matters have resulted in $9.9 million of legal expenses that have been passed through to the CMBS transaction as non-recoverable expenses. Fitch will continue to monitor the litigation, the resolution of which may negatively impact Fitch's assessment of the servicers involved.

Additional information is available on www.fitchratings.com

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