CMBS Issuance and Collateral Analysis Review

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Author: Yang, Bin
This project reviews the structure of Commercial Mortgage-Backed Securities at issuance as well as their underlying collateral analysis and deal level analysis. Through the comparison of CMBS 1.0 and CMBS 2.0 (CMBS 1.0 is the Commercial Mortgage Backed Securities issued pre-crisis and CMBS 2.0 is the CMBS that was issued after the 2008 Global Financial Crisis), we investigate how the underwriting standards evolved as a response to the crisis of 2008. This paper looks at several different categories with convergent informational outcomes. This paper identifies how underwriting standards becomes stricter, for example the cutoff LTV for CMBS 2.0 is lower and cutoff DSCR for CMBS 2.0 is higher. The new CMBS issuance starts to take off after 2008, though slowly. Moreover, this paper provides estimates of expected loss by vintage through the use of its own collateral model. Bloomberg identifies the deals we modeled as falling into one of the following categories: Conduit, Portfolio, SASB (single asset/single borrower), or Small Balance deals. In total, we modeled 617 American CMBS deals, which originated at various years between 2000 and 2011. Approximately 4,000 bonds were included in our model. The underlying property and loan information that we used in our model came exclusively from the Bloomberg database. We modeled the change in property values by the time-dependent Moody’s CPPI index. We also considered stressed property values. The discount factor on the value of a particular stressed property is influenced by relative location of the target property to stressed properties. We subtracted the current balance of the underlying loan by the current estimated value of the property in our model to get the expected loss for each loan. Then we summed each of the individual losses to get the expected total loss for each deal. This algorithm influenced our decision to investigate the change in value of the collateral underwriting the loans.
MSc of Finance Project-Simon Fraser University
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