Keeping Current With David Harrison From Midland Loan Services

Sometimes overlooked whilst not as glamorous as property investing nor loan originations, servicing nonetheless serves as the backbone of the commercial/multifamily finance industry. The sector is dynamic, complex and fundamental to the broader industry’s successes or failures long after closing dinners occur on the front end of lending businesses.

MBA Newslink interviewed Midland Loan Services’ Chief Operating Officer David Harrison, who leads the industry’s largest third-party servicing operation. He has a broad background in commercial real estate, including capital markets, asset management, underwriting, workouts, business development and client relations. Midland, based in Overland Park, Kan., provides third-party loan servicing, asset management and technology solutions for lenders, investors and other clients across a broad spectrum of industries.

MBA NEWSLINK: What are the biggest trends impacting third-party servicing today?

DAVID HARRISON: The biggest trend certainly isn’t unique to our industry, but it’s impacting everyone — staffing. There are more open jobs than there are qualified applicants across the entire country. In highly technical lines of business, such as loan servicing and complex asset management, these shortages are more impactful. While some companies can change the requirements for candidates to qualify for certain jobs, we can’t, because servicing and asset management require very specific backgrounds and career experiences.

Promoting associates internally is an excellent way to develop careers and long-term engagement for our employee base. However, internal promotion results in an open position that needs to be filled, thus continuing the cycle of staffing needs.

The staffing issue has been further exacerbated by the increasingly complicated nature of the deals that servicers manage. Growth in the CLO, transitional loan, bridge loan and highly participated loan markets has a direct impact on how servicers conduct business. The pace of growth and change has been substantial, but servicers – just like our team at Midland – are focused on meeting the needs of lenders and borrowers.

NEWSLINK: What economic factors are you most bullish/bearish about for commercial real estate in 2022?

HARRISON: It’s no surprise given the trends we’ve seen in housing during the last two years, but we are pretty upbeat about anything with a residential component. The dynamic for residential deals remains incredibly strong. As the largest servicer in the single family residential rental space, we’ve seen considerable growth in this business throughout the last year and expect this trend will continue into next year.

In addition to the continued strength of the housing market, we also believe the CMBS market should see more activity in 2022. Looking back, 2012 was the point at which the CMBS market started to shift into high gear after the great financial crisis. With the volume of maturing loans from 2012 and 2013 securitizations, there should be ample fodder for new originations, especially for borrowers who are already consumers of CMBS product. Additionally, we tend to think retail and hotel properties will be back in favor as collateral for CMBS securitizations, which also should help to drive new issuance volume. While neither of these trends guarantee deal flow, they are good indicators.

The obvious wild card for 2022 is office space. With so many companies updating their expectations for employee work arrangements, nobody quite knows what the impact of flexible work arrangements and/or full-time remote work arrangements will be on the need for office space across the country. While markets, such as New York and Los Angeles, always have been considered key locations for corporate offices, the pandemic has forced companies to re-evaluate how they utilize office space and potentially look elsewhere.

Furthermore, the average office property in a CMBS conduit securitization is not a trophy deal in a core business district market, but rather the opposite – it’s usually a suburban property in a secondary market. It’s too soon to say what the office market will look like in two to three years, however, we anticipate seeing more asset management work and requests for loan modifications in the next year.

Lastly, interest rates likely will go up at some point, possibly as soon as next year. If that happens, it likely will take some of the air out of the floating rate market, helping to fuel the market for long-term fixed rate debt.

NEWSLINK: CMBS is having a resurgence along with other CRE capital providers as the economy has improved. What are your expectations for the market’s continued evolution?

HARRISON: As mentioned previously, we believe that the CMBS market should see more activity next year. With the volume of maturing loans from 2012 and 2013 securitizations, there should be ample fodder for new originations – not to mention that we tend to think retail and hotel properties will be back in favor as collateral for CMBS securitizations, which also should help to drive new issuance volume. While neither of these trends guarantee deal flow, they are good indicators.

NEWSLINK: Technology continues to progress in our communities but CRE and CRE finance don’t generally lead the pack. How do you view opportunities in terms of technology and CRE? 

HARRISON: The evolution and subsequent adoption of technology continues to be an area that all CRE participants must grapple with. As an industry leader, we’ve been focused on modernizing and transforming our integrated platform, called Enterprise!, that streamlines loan servicing, asset management, loan accounting and investor reporting over the last several years. Our goal with the Enterprise! platform is three-fold – to deliver increased productivity, reduced operational costs and improved workflow to our clients – so we will continue to invest as appropriate to ensure we are meeting those benchmarks.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)