More Commercial Real Estate Owners See Value in Special Servicing Platforms – Commercial Observer
Back in early June, RXR’s Midtown jewel, the Helmsley Building, was put up for sale after a long default process reached its inevitable end.
There were a lot of things about that headliner story that had real estate observers chattering, but one of the big things was who the Helmsley’s commercial mortgage-backed secrities (CMBS) loan’s special servicer was: Green Loan Services (GLS) — which is an affiliate of SL Green. One of RXR’s peers. Or rivals.
The relationship between borrowers and special servicers has largely been adversarial in the three-decade history of the CMBS market, but some of New York’s best-known landlords are finding opportunity in adding special servicing to their offerings.
While some eyebrows may rise at the thought of a borrower’s CMBS loan being sent to a direct competitor for resolution if it defaults, or is about to default, the other side of the argument is that owners of commercial real estate can inject unique insight — and therefore value — when it comes to discussions around how to resolve troubled assets.
Ironically enough, RXR sees the value, and is in the process of launching its own special servicing platform this year.
RXR views the launch as a way of leveraging the extensive experience it’s gained from its massive office portfolio on the equity side and its growing credit platform. The New York-based firm’s REX Loan Services platform was approved by Fitch Ratings in early July, and by Morningstar in December.
“For us, the clear advantage is our expertise in an asset class that really was under siege for many years and there is still a tremendous number of office buildings that have to be resolved,” said Steven Schwartz, executive vice president and head of real estate credit at RXR. “Getting involved in the CMBS business as a workout entity — as a special servicer — is just one of the things that really complements the rest of our lending business, and we’ve got all this expertise in office. So, if anybody can figure out how to deliver a solution, it’s us.”
Schwartz, who joined RXR in late 2024 with more than 30 years of CRE credit experience behind him, said having a special servicing business will be useful in advising investors in the RXR credit space in the event they want to purchase the controlling bonds known as the directing certificate holder (DCH), the most subordinate and lowest-rated debt in a CMBS deal. He said those considering buying bonds with higher credit risk will see value in getting advisory services from a firm with vast experience on both the ownership and lending sides of the office sector.
Still, RXR is forming its special servicing platform at a time of mounting commercial real estate distress, along with some concerns about conflicts of interests that can arise during the loan workout process. And, the conflict of interest question is not one that easily goes away. GLS’s involvement as a special servicer with RXR’s Helmsley Building sale came two years after Fitch Ratings placed GLS’s special servicer rating on negative watch, citing “the potential for conflicts of interest” during CMBS workouts “relative to the servicing standard.” SL Green — New York City’s largest office owner — formed its special servicer business in 2006.
A July 2025 Fitch report on GLS also noted that the platform is “subjected to potential conflicts of interest” as affiliates of SL Green “have controlling positions in loans, as well as workout responsibilities.”
Among the potential conflicts of interest that could bedevil a landlord or developer who gets into special servicing is deep and unique entry into the books of their competitors for the asset in question. This could give them an advantage in terms of understanding that asset’s performance, rent rolls, lease expirations, debt service coverage ratio, and other information competitors usually take pains to keep secret — especially in times of distress.
Fitch said GLS stated it “acts in the best interest of the lenders it services for and adheres to the applicable servicing standard,” but lacks policies that state how it minimizes “affiliate influence on workouts.”
Rating agencies however do play a crucial role in keeping conflicts of issues at bay and preventing special servicers from sending information on properties to those not privy to such details.
“Their entire rating agency business is based on the upholding of securities law,” said a source familiar with the special servicing process. “That is why they have ratings, and special servicers have to abide by the special servicing standard to maintain those ratings. So I think there is a pretty tight control on material non-public information.”
Despite the potential conflicts of interests outlined by Fitch, GLS has provided value as a special servicer given its deep knowledge of the New York City office market as well as other property sectors nationally, said Christopher Herron, a managing director at Iron Hound Management, a CRE advisory firm that navigates CMBS loan restructurings on behalf of borrowers.
“GLS, by nature, has a unique lens as an owner/operator to potentially know what something is really worth, where deals are getting done and how quickly a turnaround plan or stabilization play will take,” Herron said. “They have a very informed opinion of how to value assets, and this gets everyone to the table faster to find a solution to the problem at hand.”
As a way of limiting potential conflicts of interests, GLS told Fitch it creates separate deal teams from investment and special servicing businesses when servicing a loan in which SL Green holds a position. Fitch noted, though, that the credit committee contains senior management and servicing individuals who are all SL Green employees “integral to the workout process.”
“As we celebrate the 20th anniversary of Green Loan Services, we are incredibly proud of the work we’ve done helping countless institutional bond clients resolve more than $18 billion of loans on assets across the country,” an SL Green spokesperson said in a statement. “Our deep understanding of these assets, and our experience from years and years of workouts, modifications and restructurings ensure that we get the best possible result for bondholders, a responsibility we take very seriously.”
The information that a special servicer like SL Green or RXR will obtain in a loan workout scenario when looking at a competitor’s property is no different than a traditional special servicer would see, according to Schwartz, due to strict requirements in pooling and servicing agreements (PSAs).
Schwartz said that while it may not be ideal having a competitor like SL Green learn more details about RXR during a special servicing arrangement, the firm’s extensive background as an office owner is also a positive.
“I’m sure SL Green saw the same opportunity we did, which is there are not enough specialists in this business so we fill a gap, and we offer a service to bondholders,” Schwartz said. “You want the best representative you can have as a bondholder. As a borrower, you may not like that they know everything about your property, but, candidly, they ought to be bringing a creative solution, and the right kind of idea and attitude to the project.”
Other CRE firms with ownership platforms have also launched special serving platforms. These include Rialto Capital in 2009, Ares Management in 2011, Argentic Investment Management in 2019 and Brookfield in 2020. LNR Partners operates as a subsidiary of Starwood Property Trust, which along with Starwood Capital, acquired the special servicer in 2013. Fortress Investment Group also became linked to the special servicing business with its 2010 acquisition of CWCapital in 2010.
Neil Shapiro, partner in the real estate practice at New York City law firm Herrick Feinstein, said while there were some concerns about conflicts of interests in CMBS workouts with more special servicers affiliated with CRE owners, no noticeable problems have resulted.
“The opportunity is there and the perception is there for conflict, but I have not seen any evidence of a transaction that resulted in lower proceeds for the bondholder because an affiliate picked it up,” Shapiro said. “There’s a lot of positive impacts with companies that have real estate development expertise being able to use that to help on a real estate workout.”
Further changes enacted by the CMBS industry after the 2008 Global Financial Crisis (GFC) have created more protections, making it far less likely for an owner with a special servicing business line to purchase a distressed asset.
Prior to the GFC, PSAs permitted the holder of the lowest-rated controlling bonds the right to acquire a troubled loan at its determined fair-market value. Herron noted that post-GFC, in what is commonly known as CMBS 2.0, the “direct mechanism” to assign or sell a defaulted note to the DCH (buyer of the most subordinate bonds) was removed and problems have not arisen from special servicers who have ownership ties.
“With this ability to extract a non-performing loan from the trust gone, present-day CMBS liquidations or sales are completed through a marketed note sale or auction process,” Herron said. “History has shown us that private equity or owner-developer ownership of a special servicer has not led to a predatory business in that regard.”
Shlomo Chopp, a commercial real estate restructuring veteran who is managing partner of Case Equity Partners, said that owner-operators entering special servicing is a “net positive” for achieving maximum recovery since they understand the properties and tenants enough to make real-time decisions rather than relying on appraisals. He noted that having a special servicer with “operational expertise” is especially critical in today’s market, where CMBS leverage has become higher with little margin for error.
Chopp stressed that the power of special servicers is often “overstated” given structural changes to PSAs that limit “actual” control with bondholders having far more influence. He said while there are opportunities for firms to attract free revenue from special servicing, the market opportunities are largely limited and won’t likely lead to many others copying RXR.
“It takes a long time to go through the ratings agency process to launch a special servicing platform, but I do think you’ll see some acquisitions,” Chopp said. “There are so many better ways to make money in the CMBS space, but this is a good fee generator.”
Andrew Coen can be reached at acoen@commercialobserver.com.
