Surging Distress In CRE CLO Loans Spurs Lender Rush To Repurchase Delinquent Multifamily Mortgages

Sharing is Caring!

The commercial real estate sector continues to experience elevated stress. The latest crack to emerge is the increasing number of delinquencies on multifamily mortgages.

The borrowers who took out these loans typically used them to purchase multifamily complexes, intending to renovate and flip them at a profit. However, many are now struggling with their floating-rate loans after interest rates increased, leading to a rush among lenders to repurchase delinquent multifamily mortgages.

In April, about 8.6% of commercial real estate loans bundled into collateralized loan obligations were distressed, reaching the record high set in January.

See also  The housing Problem is solved just keep getting mortgages

The loans bundled into CRE CLOs were merged with funds from individual investors to acquire multifamily housing during the Covid era. After that, borrowing rates surged, catching many off guard. A significant portion of the deteriorating loans had floating-rate interest rates, putting massive pressure on landlords’ cash flows, diminishing the market worth of the properties, and obliterating equity in a large number of investments.

See also  Global liquidity drain persists; Japanese Yen plummets, signaling potential market distress and liquidity strain.

$78.5 billion of CRE CLO loans are outstanding. This means many CRE CLO issuers are racing to find ways to prevent a tsunami of bad loans from defaulting or risk losing the fees they collect on the securities.

Recent estimates from JPMorgan show lenders purchased $520 million of delinquent loans in the first quarter of this year.

The longer the Fed delays rate cuts, the worse the CRE mess will get.

www.zerohedge.com/markets/surging-distress-cre-clo-loans-spurs-lenders-rush-repurchase-delinquent-multifamily

commercialobserver.com/2024/02/cre-clo-distress-rates-surge-over-440-in-12-months/

Views: 29

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.