2.13.14: Wells Research Supports Weaker Underwriting Metrics in CMBS Loans

Jim Brett, head of CMBS analytics at ValueXpress, was recently lamenting, “Mike, I feel like the CMBS deals are more aggressive than last year. The underwriting and asset quality just doesn’t feel as good, except for a deal here and there. If I looked at the trailing credit metrics, I wonder what I would see?”

Wells Fargo recently issued a CMBS and Commercial Real Estate Research report that supports Jim’s lament: Underwriting standards for CMBS conduit loans are deteriorating. The report notes that the recent COMM 2014-CCRE15 transaction had a net cash flow (NCF) DSCR of 1.43x, which was the second-lowest NCF DSCR of any multi-borrower transaction issued since 2010.

In the report Wells took a look at key credit metrics for 2012, 2013 and year-to-date 2014 and found decreasing results in each category. NCF DSCR declined, LTV increased, loans with LTV above 70% increased, debt yield decreased, and interest-only payment periods increased. “While these trends are great for the loan origination side of our business, we have to tread carefully as we add additional CMBS exposure on the Country Bank side of our business, where we manage its $75-million CMBS portfolio and selectively add new purchases,” commented Michael D. Sneden, Executive Vice President of ValueXpress.

The table below is a quick summary of Wells Fargo’s findings*:

Vintage

NCF DSCR

LTV

LTV > 70%

Debt Yield

DY < 9.0%

2012

1.71x

63.5%

22.8%

10.5%

18.0%

2013

1.89x

63.1%

27.3%

10.9%

26.1%

YTD 2014

1.69x

64.3%

33.4%

10.3%

34.1%

*All figures based on original issue date.

Advertisements
This entry was posted in CMBS, CMBS Securities, Commercial Mortgage-Backed Securities, Michael D. Sneden, News & Recent Closings, The Banker's Mortgage Conduit, Valuexpress and tagged , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s