Wells Fargo, the U.S. bank considered to have the most to lose in a stressed property market, agreed to sell its third-party commercial loan servicing business to Trimont, catapulting the much smaller firm to market dominance.
Trimont, based in Atlanta, is a closely held company controlled by Värde Partners, a Minneapolis global alternative investment firm that's now on its way to becoming the largest U.S. commercial loan servicer. These types of firms function as the go-between for lenders and borrowers, handling day-to-day debt management as well as collecting and distributing payments for which they charge a fee based on a percentage of the outstanding amount of a loan.
Much of Trimont's growth has come from new loan servicing assignments — a lot of it outside the United States in major markets in Europe and some in Australia, according to CEO Bill Sexton and Jim Dunbar, chair of Trimont and a partner at Värde, in an interview with CoStar News.
Värde purchased Trimont for an undisclosed price in 2015, and the Wells Fargo acquisition would be Trimont's first since that year, according to the executives.
Along with handling billions of dollars of new loans, Trimont will take in Wells Fargo servicing employees — 710 people in all — most of them based in Charlotte, North Carolina, the executives said.
Between now and when the deal is expected to close early next year, Trimont will have to find additional space in that market to house the employees, Sexton said.
“The addition of Wells Fargo’s commercial mortgage servicing business is accretive to Trimont and will strengthen its market position for years to come,” Dunbar said in a statement. “This strategically important transaction positions Trimont to be a key partner to real estate capital providers given its breadth and scale of services.”
Värde is providing funding for the transaction, the statement said.
Shift in Focus
For Wells Fargo, the deal furthers the firm's move away from managing loans while its origination and securitization of commercial real estate debt has ballooned this year. Wells Fargo has issued more than $15.2 billion in commercial mortgage-backed securities so far in 2024 compared to just $2.2 billion in the same time last year, according to CoStar data.
Meanwhile, Wells Fargo’s net mortgage servicing income has declined quarterly since the end of 2023 from $113 million to $89 million as of June 30, the bank reported in its second-quarter earnings.
As of June 2023, Trimont was servicing about 2,696 loans and real estate-owned properties with an aggregate outstanding principal balance of roughly $106.1 billion, according to the latest numbers available from CMBS loan documents. By comparison, San Francisco-based Wells Fargo’s servicing portfolio tallied more than $415 billion as of the second quarter, considered the largest in the industry.
Adding Wells Fargo's business would give Trimont control of about $640 billion of loans in the United States, equivalent to 11% of the commercial mortgage servicing market, according to Trimont based on Mortgage Bankers Association data at the end of 2023.
“This transaction is consistent with Wells Fargo’s strategy of focusing on businesses that are core to our consumer and corporate clients,” Kara McShane, executive vice president, and head of Wells Fargo Commercial Real Estate, said in a statement. “We remain committed to our market-leading commercial real estate business, and we will continue to serve our clients with a broad suite of lending, advisory and capital markets capabilities while leveraging our franchise to grow our corporate and investment bank.”
In the second quarter, Wells Fargo posted wider losses related to office properties. The third-largest U.S. bank, as measured by assets, reported nonperforming assets up $410 million, or 5%, from the first quarter, driven by higher business property nonaccrual loans, predominantly in its office portfolio. This type of loss draws attention because a loan designated as nonaccrual indicates it is no longer generating its stated interest rate as a result of no payment having been made by the borrower for 90 days or more.
For Trimont, the Wells Fargo acquisition also accelerates its growth in the commercial mortgage servicing business. The firm provides commercial real estate services to lenders and investors, including primary servicing, construction loan servicing, special servicing, and asset management. Other business lines include bond finance servicing, underwriting, accounting solutions and information management services.
Bond-rating firm S&P Global Ratings, in a review of Trimont’s servicing operations in April, gave the firm a “strong” ranking based on its ability to manage its existing servicing portfolios successfully, expand its staff, maintain a robust audit program, and invest in technology.
This article was updated on August 23 to clarify that Varde purchased Trimont in 2015.