CRE CLO market faces volatility as delinquencies rise and issuers resort to maneuvers.

Key points:

• Commercial Real Estate Collateralized Loan Obligations (CRE CLO) issuance surged from $19 billion in 2019 to $45 billion in 2021.
• 72% of collateral is linked to multifamily properties.
• Delinquent loans or those in special servicing rose to 8.6% in January but decreased to 7.4% in February.
• Issuers repurchase delinquent loans using cash reserves to avoid breaching asset coverage tests, amounting to $1.3 billion in 2023.
• Issuers employ strategies like loan extensions and modifications to maintain borrower compliance.
• 15% of Ready Caps loans have been transferred to special servicers.

Potential implication:

• Rising delinquencies and issuers’ maneuvers to manage them suggest underlying instability in the CRE CLO market.

Source:

www.bloomberg.com/news/articles/2024-03-19/real-estate-pain-is-showing-up-in-collateralized-loan-obligations-clos?leadSource=reddit_wall

As a follow-up, Bloomberg had a good article on the CLO space. A few highlights:

– CRE CLO issuance exploded from $19B in 2019 to $45B in 2021. 72% of collateral is tied to multifamily.

– Loans more than 30 days delinquent or in special servicing jumped to 8.6% in Jan, but…

— Joe Stampone (@Joe_Stampone) March 21, 2024