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Special servicing platforms raise conflict concerns in commercial real estate
Some critics warn about “foxes guarding the henhouse” risk, while legal and industry sources argue there is tight control tied to rating standards.
Commercial Observer highlights a growing trend in commercial real estate where owners and lenders, including RXR, SL Green, and Ares Management, are launching special servicing platforms. The platforms are intended to give owners visibility into what is happening inside competitors’ distressed asset portfolios.
The outlet notes that Fitch Ratings has flagged the potential for conflicts of interest, describing the concern that the same parties involved in distressed-asset decisions could have incentives tied to affiliates. Still, New York law firm Herrick Feinstein partner Neil Shapiro told Commercial Observer he has not seen evidence of transactions that reduced proceeds for bondholders when an affiliate picked up an asset.
Commercial Observer also points to the role of ratings agencies and securities-law compliance as a limiting factor. According to a source familiar with special servicing, maintaining ratings requires special servicers to follow special servicing standards, creating what the source called tight control on material non-public information.
The story further connects the broader market backdrop to REIT performance, saying some REITs can have strong operating results yet see their stock not reflect that pace, especially in office. It also references upcoming earnings coverage, including Prologis’ second quarter results, as part of the same ongoing real estate and capital markets beat.