A study completed by John Griffin and Alex Priest of The University of Texas at Austin shows that COVID may be revealing that CMBS had a problem well before the pandemic started. Here are some key items noted in their research of $650B worth of commercial mortgages originated from 2013 to 2019:
28% of loans have net income that is 5% or more below projections in the underwriting.
During the pandemic, loans with inflated income were quicker to enter watchlists for troubled loans maintained by servicers.
Income was overstated by 5%+ in more than 40% of loans originated by UBS, Starwood Property Trust, and Goldman Sachs, Inc.
In a subsample of 2,172 loans, 70% of loans exhibiting income inflation of 5% or more in the first year of the CMBS deal also overstated properties’ historical financials.