Fitch Ratings has upgraded BrightSpire Capital Asset Management, LLC's (BrightSpire or the company) commercial mortgage special servicer rating to 'CSS2' from 'CSS2-'.

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BrightSpire Capital Asset Management, LLC

CMBS Special Servicer

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Key Rating Drivers

The upgrade of the special servicer rating reflects significant operational improvements the company has made since its separation from its former parent company, DigitalBridge Group, Inc., formally Colony Capital, Inc. (CLNY). Since Fitch's last review the company has established its own human resources group, information technology, internal audit, treasury, compliance and insurance functions ending the need for a transitional services previously provided by CLNY. BrightSpire has also improved its policy and procedure documentation with the adoption of desktop procedures.

The rating upgrade also recognizes improved employee turnover, which had previously been a concern, and the financial condition of the parent company BrightSpire Capital, Inc., which Fitch believes is on an improving trend.

BrightSpire is the captive special servicer of BrightSpire Capital, formerly known as Colony Capital AMC OPCO, LLC. BrightSpire was the captive special servicer of CLNY. However, BrightSpire's special servicing staff, technology, and policies and procedures were transitioned to Colony Credit Real Estate Inc. (CLNC) in April 2021, in conjunction with the internalization of the company's management and operating functions and simultaneous termination of the management agreement with a subsidiary of CLNY.

In June 2021, CLNC changed its corporate name and rebranded itself as BrightSpire Capital, Inc. BrightSpire Capital ended its transitional services agreement with CLNY in 2021 after the successful internalization of back office functions.

BrightSpire strengthened its information technology infrastructure with the addition of RealINSIGHT in 2022. The application contains more robust asset management and reporting functionality compared to legacy tools. The company also uses Anaplan as its primary data repository and to aggregate data from multiple sources, including data feeds from primary servicers, as well as budget planning.

In addition to using Anaplan as the company's primary data repository, BrightSpire also utilizes Tableau for reporting, Yardi for accounting, as well as SharePoint and Documentum, a third-party document management tool. BrightSpire also adopted Yardi Debt module application in 2022 to support corporate accounting for highly structured loan products.

The special servicing group comprises 16 employees, 13 of whom are fully dedicated to performing loan asset management and special servicing functions. Three employees, who have less than a 50% allocation to special servicing, are also responsible for credit, originations, and administrative support functions. Overall turnover declined significantly to 19% during the 12-months ending June 2022 from 74% the prior period. Excluding internal transfers, which represent two of the three departures, turnover is 6%. The senior management team, which experienced no turnover, averages 24 years of industry experience and 11 years of tenure through predecessor entities.

Fitch identified two members of the special servicing group as asset managers who are actively working out defaulted loans. Asset managers average 20 years of industry experience and 11 years with the company and currently maintain an assets to asset manager ratio of less than 2:1, which is amongst the lowest for Fitch-rated special servicers and indicates excess capacity for potential future loan defaults. Employees completed approximately 40 hours of training during the 12 months ending June 2022, consistent with company goals.

BrightSpire has structured its internal control environment around the requirements of a publicly traded company along the three-lines-of-defense methodology. The company's control environment consists of high-level policies and procedures, detailed desktop procedures, active management oversight and outsourced internal audits. BrightSpire monitors compliance with policies and procedures through operational controls integrated within workflows and a formal committee approval process for material decisions.

The company completed its first internal audit as a stand-alone entity in 2022 with no findings. The prior audit was completed in 2019 by CLNY although the company expects to continue internal audits annually going forward.

As of June 30, 2022, BrightSpire was the named special servicer for 144 loans totaling $4.5 billion, consisting of $1.7 billion in two securitized CRE-CLO transactions and $2.8 billion across 87 non-securitized loans. The company's non-securitized named special servicing portfolio increases based on affiliate origination volume. As the balance of non-securitized loans increases, BrightSpire Capital securitizes loans into CLO transactions for which BrightSpire is the named special servicer, and the loans move from non-securitized to securitized.

Depending on capital market liquidity, BrightSpire Capital generally expects to issue one managed CLO transaction annually as newly originated loans can be contributed to existing transactions to mitigate payoffs. The company has not issued a 2022 vintage transaction due to unfavorable market conditions resulting a growing non-securitized portfolio.

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

Criteria for Rating North American Commercial Mortgage Servicers (pub. 22 Jan 2020)

Criteria for Rating Loan Servicers (pub. 08 Feb 2020)

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BrightSpire Capital Asset Management, LLC

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