Will Securities Offering Documents Be Subject to New Scrutiny?

“In the 20-plus years I’ve been an expert witness in CMBS, I can think of very few instances where there is some kind of fraud in the accounting numbers. It is very infrequent”

“In the 20-plus years I’ve been an expert witness in CMBS, I can think of very few instances where there is some kind of fraud in the accounting numbers. It is very infrequent”

Written by R. Ashton Rowles
Published on August 24, 2020

As CMBS loan delinquencies accelerate due to the coronavirus pandemic, troubled loans with questionable underwriting are revealing themselves. Is there pervasive wrongdoing where lenders who wanted to make bigger loans were inflating net operating incomes on loan originations? One whistleblower has the evidence: CMBS industry John Flynn says that half-occupied buildings have been underwritten as fully occupied, and half-completed buildings have been underwritten as fully completed. 

Will loss in value of investments prompt legal action on behalf of investors? And if allegations of inflated NOIs are revealed to be true, will this reduce debt service coverage ratios and increase the amount of distressed loans impacting the market when we need stability more than ever?  

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