OREANDA-NEWS. Fitch Ratings has affirmed C-III Asset Management LLC's (C-III) commercial mortgage primary and special servicer ratings at 'CPS2' and 'CSS1-', respectively.

C-III, which is wholly owned by C-III Capital Partners LLC (C3CP) and is indirectly controlled by Island Capital Group (Island Capital), performs primary servicing for third party and pre-securitization originations of third parties and C-III Commercial Mortgage LLC loans and special servicing primarily for legacy CMBS transactions. C-III, through its affiliates, provides property management, brokerage, and title services to C-III as well as third parties.

The recommendation to affirm the commercial primary servicer rating reflects Fitch's assessment of the company after a significant reduction in staff following the termination of a subservicing agreement governing C-III's agency loan portfolio. Servicing transitioned away from C- III in early 2015, resulting in a 78% decline in C-III's primary servicing portfolio from Dec. 31, 2013 to March 31, 2015.

While Fitch is concerned that current staffing levels present greater key-man risk and limited bench strength, staffing reductions reflect the decline in portfolio size. Relative to similarly staffed primary servicers, C-III continues to maintain a strong primary servicing internal control infrastructure, robust technology, and a core group of experienced staff necessary to perform primary functions effectively. Additionally, C-III's management expressed C3CP and Island Capital's commitment to primary servicing in order to maintain a complementary CRE platform and to pursue third party servicing business strategies. Fitch will continue to monitor C-III's ability to effectively perform primary servicing functions in the context of portfolio size and staffing levels.

As of March 31, 2015, C-III's primary servicing portfolio consisted of 193 loans totaling \$3.5 billion, of which two loans amounting to \$29 million were CMBS. The majority of the company's non-CMBS primary servicing includes warehouse servicing for a commercial mortgage originator, as well as the companies own originations pre-securitization.

The recommendation to affirm the commercial special servicer rating of C-III reflects Fitch's assessment of C-III's strong management group, special servicing staff experience and asset management capabilities, commitment to technology for asset management, extensive workout experience, and internal control environment, as well as outsourcing of special servicing functions for a limited number of loans.

Declining special servicing volume contributed to 27% asset management turnover in the last 12 months, down from 33% turnover in 2013; aggregate special servicing turnover was 21% relative to 28% at the last review. The asset to asset manager ratio is 10:1, consistent with the last review.

Fitch also considered C-III's use of affiliates that provide asset dispositions, title reviews, property management, and brokerage services throughout the workout process with direction from C-III. C-III maintains detailed policies and procedures addressing internal conflicts of interest and the use of affiliates, and Fitch found the policies and procedures and transparent disclosure to be among the best of Fitch-rated servicers. In particular, the policies and procedures address the exchange of information between affiliates and businesses dealing with the sale of loans, fair value purchase options and potential refinancing. Fitch found C-III to be transparent on the use of and fees paid to affiliates, which Fitch determined to be commercially reasonable and similar to those paid to non-affiliate companies.

Fitch's assessment of the special servicer rating also noted the outsourcing of one transaction to an unrated special servicer, who is also the controlling class holder, under a sub-servicing agreement. As of Dec. 31, 2014, only five loans were specially serviced; however, there is the potential for additional loans to be outsourced. While C-III maintains an active oversight role, quarterly compliance reviews and retains ultimate approval authority of resolutions and consent requests, Fitch noted the sub-servicer is responsible for most functions such as preparing certain CREFC reports, annual compliance for specially serviced loans, vendor engagement, and trust expenses with notice to C-III rather than formal approval.

As of March 31, 2015, C-III was named special servicer on 9,866 CMBS and 107 non-CMBS loans totaling \$108.1 billion.

As of the same date, C-III was actively working out 285 defaulted CMBS loans totaling \$4.5 billion and managing 158 REO assets representing \$2.1 billion. C-III generally owns the controlling class positions in the CMBS transactions for which it is the special servicer.