Fitch Flags Transparency Concern Over Workout Of $350M NYC Office Loan
Mount Street’s U.S. special servicing arm could see its servicer rating downgraded after Fitch Ratings raised concerns about transparency during its loan workout process.
Fitch’s placement is due to UK-based Mount Street’s receipt and reporting of valuations of a delinquent loan backing Shorenstein Properties’ 1407 Broadway, a 1.1M SF New York Garment District office building, according to a report by the ratings agency.
The $350M loan transferred to the special servicer last August, ahead of its second extended maturity date in November 2023. It was then transferred from KeyBank to Mount Street in November, according to Fitch.
As of the April 2024 payment date, the loan was reported as a nonperforming matured balloon and was more than 90 days past due. Fitch said limited information was provided and that the ratings agency hasn't received full-year financials since the end of 2022.
Mount Street was assigned a negative rating outlook in January due to multiple years of high turnover among employees, including the former head of servicing, who departed in December after starting the role in March 2021.
Fitch also reported that the special servicer has been slow to adopt the company's asset management application, with the creation of business plans for defaulted loans remaining a manual process.
"At Mount Street, we believe that balancing borrower negotiations (ie, maximising recovery value) with market transparency is sometimes difficult with isolated, complex situations such as the deal cited," Dean Wheeler, head of Mount Street’s U.S. operations, said in a statement to CoStar. "It is our assessment that Mount Street is not alone in the subjective transparency balancing act performed by many servicers."
Fitch said the lack of transparency was compared to "all market participants relative to other Fitch rated special servicers."
"Based on discussions with several market participants, including other servicers, information sharing is not as uniform across the industry as the press release suggests," Wheeler's said. "Regardless, we will always strive to perform our fiduciary role in the best way possible while endeavoring to take the feedback from the rating agencies to heart."
Mount Street didn't respond to Bisnow's request for comment.
As of April 9, Mount Street and Shorenstein were negotiating a potential loan modification, according to servicer commentary in the Morningstar Credit database. Occupancy at the office is stable at roughly 80%, according to the commentary, but the landlord hasn't made its debt service payments.
Mount Street filed a foreclosure action against Shorenstein in March in case negotiations aren't successful.
Shorenstein declined to comment. It took out the $350M loan from Barclays in 2019, valuing the building at $510M.
