Is COVID Revealing a CMBS Virus?

58 Pages Posted: 23 Aug 2020 Last revised: 1 Dec 2020

See all articles by John M. Griffin

John M. Griffin

University of Texas at Austin - Department of Finance

Alex Priest

University of Texas at Austin - Department of Finance

Date Written: August 10, 2020

Abstract

Commercial loan valuations crucially depend on accurate loan income, but underwritten income on CMBS loans is commonly overstated when compared to actual property income. Consistent with these differences being purposeful, income overstatement in 2013 to 2019 CMBS deals varies widely and persistently across originators, is priced by originators, predictable ex-ante, and accompanied by inflation of past financials. Originator income overstatement is highly predictive of pre- and COVID-period loan distress. Appraisal and cap rate aggressiveness also predict current distress. Overall, recent market stresses seem to further verify the large systemic differences in underwriting standards across originators.

Keywords: Commercial Mortgages, Commercial Mortgage Backed Securities, Income Overstatement

JEL Classification: G21, G23, R30

Suggested Citation

Griffin, John M. and Priest, Alex, Is COVID Revealing a CMBS Virus? (August 10, 2020). Available at SSRN: https://ssrn.com/abstract=3671162 or http://dx.doi.org/10.2139/ssrn.3671162

John M. Griffin (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6621 (Phone)

HOME PAGE: http://www.jgriffin.info

Alex Priest

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

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