The race to lock in historically low interest rates and maintain healthy CMBS origination levels has led to loan oversight in two recent securitizations, according to Fitch Ratings.
Goldman Sachs, Citigroup and Jefferies’ GSMS 2013-GCJ16 priced on Nov.8. and the conduit deal has already run into trouble.
According to a Fitch report today, a $47.5 million loan backed by mid-western shopping centers was removed from GSMS 2013-GCJ16 after the deal priced. The loan was the fifth largest in the pool and was pulled due to concerns over terms of a discounted payoff of a prior financing.
Market concerns over the GCJ16 deal may have led to the removal of the ninth largest loan in Morgan Stanley BofA Merrill Lynch Series 2013-C13 deal, just two days after the deal launched. That deal priced last week.
Fitch blames the rapid increase in originations for the loan oversight -- U.S. CMBS volumes in 2013 are expected to be $87.5 billion by year end, up 81% from 2012's $48.4 billion.
The ratings agency said that supporting this level of growth leaves origination teams vulnerable to “losing track of important pieces of information because they are understaffed.”
And Fitch expects more “cracks” in CMBS origination to appear as a result of understaffing.
One potential trend is a rise in loss severities as new properties drive stable properties out of business. “This situation has occurred when lenders did not have sufficient time or resources to understand the local real estate market, the property's competitive profile, the property's competition or the potential for new competition,” explained Fitch.
Fitch said in the report that “these types of issues,” would lead to higher subordination levels in CMBS conduit deals it rated.