CRE CLO Distress Rate Reaches Record 16%

The CRED iQ commercial real estate collateralized loan obligation (CLO) distress rate added 90 basis points (bps) in February — reaching a new high of 16 percent. A year ago, the CLO distress rate was only 9.4 percent but has been steadily rising as floating-rate loans fail to pay off at their maturity dates. 

Underpinning the distress rate, February’s delinquency rate tacked on 44 bps to reach 12.2 percent. The special servicing rate added 57 bps to hit 9.4 percent in the latest print. 

The CRED iQ distress rate includes any loan reported 30 days delinquent or worse, past its maturity, specially serviced or a combination of these metrics. We also examined the most recent property-level net operating income figures and compared them to underwritten expectations.

Looking across payment status in February, 30.7 percent of loans are performing matured (down from 33.4 percent in January). Of these loans, 32.7 percent were nonperforming matured (up from 25.6 percent in January). Combining these two metrics, 63.4 percent of the CRE CLO loans in our study are past their maturity dates, up 436 bps from 59 percent in the previous report. 

About one-fifth of CRE CLO loans (20.3 percent) are current (up from 18.8 percent in January). Combining late but less than 30 days delinquent, the percentage increases to 23.1 percent, up from 22.1 percent in our January print. 

Delinquent loans that have not passed their maturity date accounted for 13.5 percent of the CRE CLO loans — down from 18.9 percent in January

Analysis scope and methodology

CRED iQ consolidated all of the loan-level performance data for every outstanding CRE CLO loan to measure the underlying risks associated with these transitional assets. Our team examined $66.4 billion in active CRE CLO loans. Many of these loans were originated in 2021 at a time when cap rates and interest rates were low and valuations high. These loans are starting to run into maturity issues given the spike in rates.

Some of the largest issuers of CRE CLO debt over the past five years include MF1, Arbor, LoanCore, Benefit Street Partners, Bridge Investment Group, FS Rialto and TPG. The vast majority of the $79.1 billion in CRE CLO loans are structured with floating rates with three-year loan terms equipped with loan extension options if certain financial hurdles are met.

Mike Haas is the founder and CEO of CRED iQ.