DBRS Releases Appraised Values and Losses in CMBS Commentary

DBRS has today published a commentary that examines the relevance of CREFC Investor Reporting Package reported appraised values and their predictive power over losses in CMBS.

“Our findings show that, while the Appraisal Reduction Amount (ARA) is generally a good predictor of loss, it consistently understates actual CMBS losses,” says David Nabwangu, Senior Vice President, CMBS Surveillance at DBRS.

The paper outlines suggestions for the industry and/or market participants in improving the accuracy of the ARA as a predictor of loss, including revising the deemed ARA and the 10% haircut to value that is applied in the ARA calculation.

It also discusses the role of the Special Servicer and its implications. “Special Servicers have influence over the appraisal process and as an industry we should understand how and why, as this control often results in delays in posting updated appraised values,” says Nabwangu. “We observe that the ARA’s ability to reflect actual loss is distorted by the preferred treatment of pivotal loans.”