The Real Deal Miami

Moody’s change of heart on CMBS ratings will lead to increased risk: analyst

More liberal approach will likely win the service business, but might spur market aggression

August 12, 2015 05:15PM

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Alan Todd CMBS

From left: Alan Todd and Gabriel Silverstein

From the New York website: Conservative credit-rating giant Moody’s is growing more aggressive in how it rates commercial mortgage-backed securities  and some analysts fear it could lead to higher risks for investors in the resurgent market, widely viewed as the catalyst to the 2008 crash.

Moody’s took the financial industry for a ride last week when it announced it would be changing the way it calculates the likelihood that a certain type of CMBS will default.

Essentially, smaller firms will have an easier type borrowing potentially excessive loans in relation to the value of their buildings, Bank of America analyst Alan Todd told Bloomberg News.

“It just sets the stage for another leg up in underwriting aggressiveness,” he said.

The change in calculus will likely win business for Moody’s, which ranked behind four other credit rating agencies on rating U.S. transactions that move giant single mortgages into a series of bonds. Moody’s rated 45 percent of those types of bonds in 2013, but now ranks only 6 percent.

Moody’s said Todd “was wrong” in his assessment of investor risk.

After a dormant period following the crash in 2008, CMBS is back with a vengeance.

New securitized loans based on New York City properties in the first half of 2015 totaled $11.54 billion, a 47 percent increase year-over-year from 2014. It’s at a higher pace than any year since 2007.

Gabriel Silverstein, head of capital markets brokerage and advisory firm Angelic Real Estate, told The Real Deal in July that it’s too soon to tell if lending practices are again slipping into recklessness. The market for securitized debt imploded in 2008 and 2009 and only started to pick up again in 2011. [Bloomberg] — Marynia Kruk