Commercial mortgage-backed securities issuance rose to $39 billion, up from roughly $15 billion during the same period in 2012. 

A majority of this issuance comes from conduit/fusion transactions, accounting for $23 billion of the 2013 CMBS total, according to Standard & Poor’s latest report.

“We believe these new deals — especially those issued during the second quarter — are riskier compared with 2013 and other recent vintage conduit/fusion deals,” said analysts for S&P.  

They added, “As the market gears up, we believe underwriting standards are slipping. Borrowers have increased leverage, riskier interest-only loans have become more prevalent and the percentage of lodging collateral — which Standard & Poor’s considers one of the riskier property types — is climbing.”

The practice of pro forma underwriting, giving credit to potential future increases in property revenue, is creeping back into some loans, mostly in primary markets.

At the same time, more CMBS originators are entering the market, raising competition for a finite supply of loans. 

“We believe the risks associated with continued deterioration in loan standards this year, especially in recent deals, could eventually lead to higher loss 
rates,” S&P analysts concluded.