CMBS troubles brewing? Some observers think so

A slide in the quality of new U.S. commercial mortgage-backed securities has accelerated in recent months, and may be unstoppable even if some investors balk at deals, a key investor and major rating firm warned. The theme resounded at an industry conference at New York’s Waldorf-Astoria this week, where some money managers and rating companies said they are bracing for a decline in underwriting standards to those seen in 2007, when easy money fueled a record $234 billion in CMBS volume. A rise in underwriting based on assumptions about future, rather than on present, revenue has alarmed investors who worry the market is being made vulnerable to new woes just as it begins to recover from past excesses and the credit crunch. Indeed, the CMBS delinquency rate is hovering around its high-water mark of 9%, a reminder of the consequences of aggressive underwriting.