Sometimes overlooked whilst not as glamorous as property investing nor loan originations, servicing nonetheless serves as the backbone of the commercial/multifamily finance industry. Midland Loan Services sector is complex, dynamic and essential to the success or failure of the wider industry long after the closing dinners.
MBA Newslink interviewed David Harrison, Midland Loan Services’ Chief Operative Officer. Harrison is responsible for the industry’s largest third party servicing operation. His background includes commercial real estate including capital markets, asset management and underwriting. He also has experience in client relations, business development, and client relations. Midland is a Kansas-based company that provides third-party loan servicing and asset management, as well as technology solutions to lenders, investors, and clients in a wide range of industries.
What trends are most impacting third-party Midland Loan Services today?
DAVID HARRISON – The most important trend isn’t just for our industry but it’s affecting everyone: staffing. In the United States, there are more jobs available than qualified candidates. These shortages can be more severe in highly technical business lines, like payday loan store servicing or complex asset management. Some companies may be able to change the qualifications for applicants in order to get certain jobs. However, we are unable to do so because servicing and asset management require specific career experience and backgrounds.
Internal promotion is a great way to build careers and engage employees long-term. Internal promotion can result in an open position, which will need to be filled. This keeps the cycle of staffing going.
Servicers are managing increasingly complex deals, which has further complicated the staffing problem. Servicers’ business models are affected by the growth in CLO, transitional loan and bridge loan markets. Servicers, just like the Midland team, are focused on meeting the needs and wants of lenders and borrowers.
Which economic factors do you think are most important for commercial real property in 2022?
HARRISON : This is no surprise considering the housing trends over the past two years. However, we are very positive about any residential component. The residential deal market is still very strong. We are the largest single-family residential rental servicer and have seen significant growth over the past year. This trend is expected to continue into next year.
We believe that the CMBS market will see more activity in 2022, apart from the continuing strength of the housing market. The year 2012 was when the CMBS market began to move into high gear following the financial crisis. The volume of mature loans from 2012 and 2013 securitizations should provide ample material for new originations, particularly for borrowers who are already consumers CMBS product. We believe that retail and hotel properties will become collateral for CMBS securitizations. Midland Loan Services should also help drive new issuance volume. These trends are not guaranteed to bring in deal flow but they can be used as indicators.
Office space is the obvious wildcard for 2022. There are many changes in the expectations of employees and companies. Nobody knows how flexible work arrangements or full-time remote work will impact the demand for office space. Although markets such as New York City and Los Angeles have always been key locations for corporate offices in the United States, the pandemic has caused companies to reevaluate their office space use and may look elsewhere.
The average office property in a CMBS conduit seizure isn’t a luxury deal in a core market. It’s more often a suburban property in a secondary marketplace. Although it’s impossible to predict what the office market will look like over the next two- to three years, we expect to see more asset management and loan shopping modification requests in the coming year.
Last but not least, interest rates are likely to rise at some point in the future, perhaps as early as next year. It is likely that the floating rate market will be drained of some of its liquidity, which will fuel the long-term fixed rate debt market. Along with other CRE capital providers, is experiencing a resurgence as the economy improves. What do you expect from the market’s evolution?+
HARRISON – As we have said, we expect more activity in the CMBS market next year. The volume of mature loan for start ups from 2012 and 2013 securitizations should provide ample material for new originations. We also believe that retail and hotel properties can be used as collateral for CMBS Securitizations. This should drive new issuance volume. These trends are not indicators of deal flow but they do provide some indications.
NEWSLINK: While technology continues to advance in our communities, CRE and CRE financing don’t always lead the charge. What do you think of CRE and technology opportunities?
HARRISON – The rapid evolution and subsequent adoption technology is a constant challenge for all CRE participants. We have been a leader in the industry and have focused our efforts on modernizing and transforming Enterprise!, an integrated platform that streamlines loan with bad credit servicing and asset management. It also provides investor reporting and reports. Enterprise! is our goal. The goal of the Enterprise platform is threefold: to increase productivity, reduce operational costs, and improve workflow for our clients. We will continue to invest where necessary to meet those benchmarks.
These views do not reflect the policy of Mortgage Bankers Association and do not constitute an endorsement by MBA of any company, product, or service. MBA NewsLink welcomes your submissions. Midland Loan Services can send inquiries to Mike Sorohan (editor at MBA.org) or Michael Tucker (editorial manager at [email protected]).