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Rialto Capital Management LLC Assigned ABOVE AVERAGE Commercial Special Servicing Ranking

January 4, 2013

Rialto Capital Management LLC Assigned ABOVE AVERAGE Commercial Special Servicing Ranking

Servicer Analysts:
Timothy E Steward, New York (1) 212-438-1000; timothy_steward@standardandpoors.com
Mark I Goldberg, New York (1) 212-438-1000; mark_goldberg@standardandpoors.com
Andrew Foster, New York (1) 212-438-1000; andrew_foster@standardandpoors.com

OVERVIEW

• We assigned an overall ABOVE AVERAGE ranking to Rialto Capital Management LLC as a commercial loan special servicer. The outlook is stable.

• This is the first time we assigned a commercial servicer ranking to Rialto.
 
• We based our opinion on the company's seasoned management team; effective technology, audit, and compliance controls; and well-defined loan and asset workout procedures.

NEW YORK (Standard & Poor's) Jan. 4, 2013--Standard & Poor's Ratings Services today assigned an ABOVE AVERAGE ranking to Rialto Capital Management LLC (Rialto) as a commercial loan special servicer. The outlook is stable for the special servicer ranking, and the company's financial position is Sufficient.

Rialto is a leading real estate investment management company focused on distressed and value-add investments, asset management, workout, and turnaround strategies. The company is a wholly owned subsidiary of public homebuilder Lennar Corp., one of the nation's largest homebuilders. Rialto was founded in 2007 by the former co-founders of what eventually became LNR Partners LLC. Since late 2009, Rialto has invested in or commenced the workout or oversight of billions of dollars of real estate assets, including distressed commercial and residential real estate loans and properties as well as mortgage backed securities. Rialto's investments and management capabilities include partnerships in more than $3 billion in structured transactions with the Federal Deposit Insurance Corp. (FDIC). The company has also been a sub-advisor and investor in a $4 billion public private investment fund with the U.S. Department of the Treasury. In recent years, Rialto has been one of the most active CMBS B-piece buyers. The company plans to increase assets under management by continuing to invest in and manage CMBS and nonperforming loan portfolios. Rialto's special servicing operation is headquartered in Miami, Fla.

This is the first time we have assigned a commercial servicer ranking to Rialto. In the relatively short time that the company has been in existence, it has made considerable progress building the infrastructure necessary to manage portfolios of sub-performing and nonperforming commercial and multifamily mortgage loans and real estate assets. The assigned ranking reflects what we consider to be Rialto's seasoned management team, solid audit and control environment, and good loan workout and REO processes.

KEY RANKING FACTORS Strengths:

• Effective use of technology and systems

• Good audit, compliance, and control environment

• Seasoned management team with many years of industry experience
 
• Well-defined and effective loan workout and REO procedures and process flows

Weakness:
 
• The company does not have approved lists for some vendors and lacks a formal vendor performance monitoring process

As of June 30, 2012, the company actively managed a special servicing portfolio of 4,929 loans totaling $2.1 billion and 1,529 REO assets totaling $2 billion. Currently, Rialto concentrates on managing assets that it invests in and does not provide servicing for third parties. Rialto is the named special servicer on five CMBS transactions totaling 894 assets with a UPB of approximately $4.5 billion

OUTLOOK

The outlook for the commercial mortgage special servicer ranking is stable. Rialto projects reasonable volume growth over the near term and should benefit from continued investment in commercial real estate assets. Management has demonstrated its commitment to investing in staffing, systems, and other resources necessary to administer its portfolio in accordance with industry standards and to serve it clients and investors.

RELATED RESEARCH AND CRITERIA

• "Servicer Evaluations: Servicer Evaluation Ranking Criteria: U.S.," Sept. 21, 2004

• "Revised Criteria For Including RMBS, CMBS, And ABS Servicers On Standard & Poor's Select Servicer List," April 16, 2009

• "Standard & Poor’s Comments On Potential Conflicts Of Interest Within Commercial Special Servicing Market," March 9, 2012

• "Select Servicer List," updated monthly

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