Finance  ·  CMBS

The Emergence of CRE CLO Distress

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CRED iQ’s research team set out to explore commercial real estate distress from a fresh perspective. We were interested in examining special servicer loan transfers over the past year, and our team wanted to understand trends by deal type and reason over time. 

As a starting point, we broke down each month’s transfers by deal type and plotted these along a timeline which seems to reveal some noteworthy trends. 

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February 2023 saw a spike in agency deal filings, with 36 loans transferring to special servicing. Apart from February, conduit commercial mortgage-backed securities (CMBS) loans dominated all other classes in loan filings, consistent with the proportional size of the conduit universe.   

In August of 2023, we saw the highest number of loans transferred to the special servicer. August marked the beginning of a trend of substantial distress in the CRE collateralized loan obligation (CLO) arena. Following months of one or two loan transfers, August saw 31 CRE CLO loans sent to special service. A further 41 CRE CLO loans transferred later in 2023, and that trend continues to be a major focus in 2024.  

Over this past 12-month period, “imminent monetary default” was the leading transfer reason. The data breaks down this category into two separate groupings. When combined, roughly half of the leans in our study were transferred for imminent monetary default. Fort Worth has the highest rank for Freddie Mac securitizations.

Mike Haas is founder and CEO of CRED iQ.