Commercial Properties’ Ability to Repay Mortgages Was Overstated, Study Finds

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.

#Covid19 #CMBS #GoldmanSachs #UTAustin #Study

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