S&P Cites CMBS Concerns

Standard & Poor's Ratings Services says it has become "increasingly concerned" by several trends in the commercial mortgage-backed securities market, including deteriorating underwriting and origination standards.Other troubling trends cited by S&P include relaxed requirements for capital expenditure, tenant improvement, and leasing commission reserves; a growing number of interest-only loans and loans with IO periods; and "relaxed adherence" to structural and legal safeguards. "Although we are not yet convinced that these trends are endemic or widespread within the market, Standard & Poor's is troubled that they are looming on the horizon," said Kim Diamond, a managing director in S&P's Global Real Estate Finance Group. S&P said balloon-balance refinancing risk is a growing concern that "will only be exacerbated by increasing interest rates and a higher percentage of interest-only loans." S&P can be found online at http://www.standardandpoors.com.