Some Loan Oversight Risk in Recent CMBS Deals: Fitch


The race to lock in historically low interest rates and maintain healthy commercial mortgage-backed securities origination levels has led to the removal of loans from two recent securitizations, according to Fitch Ratings.

Goldman Sachs, Citigroup and JefferiesGSMS 2013-GCJ16 priced on Nov. 8, and the conduit deal has already run into trouble.

A party or parties involved with the deal apparently removed a $47.5 million loan backed by Mid-Western shopping centers from GSMS 2013-GCJ16 after the deal priced due to concerns over terms of a discounted payoff or a prior financing, according to a Fitch report Tuesday. The loan was the fifth largest in the pool.

Market concerns over the GCJ16 deal may have led another party or parties involved in Morgan Stanley and Bank of America Merrill Lynchs Series 2013-C13 transaction to remove the ninth largest loan just two days after it launched last week.

Fitch blames the rapid increase in originations for the problems. Estimates put U.S. CMBS volumes in 2013 at roughly $87 billion by year end, up 81% from 2012’s close to$48 billion.

Supporting this level of growth leaves origination teams vulnerable to losing track of important pieces of information because they are understaffed, according to Fitch.

Fitch expects more cracks in CMBS origination to appear as a result of understaffing.

One potential trend is a rise in loss severities as new properties drive stable properties out of business. This situation has occurred when lenders [lacked] sufficient time or resources to understand the local real estate market, the property’s competitive profile, the property’s competition or the potential for new competition, explains Fitch.

These types of issues will lead to higher subordination levels in rated CMBS conduit deals, according to Fitch.

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