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Distress Rate for CRE CLOs Rises 60 BPs in June
The distress rate for $79.1 billion of commercial real estate collateralized loan obligations (CLOs) reached 10.3% as of June 30, an increase of 60 basis points over the previous month, CRED iQ reported The distress rate includes any loan reported 30 days delinquent, past its maturity, specially serviced or a combination of these circumstances. For CRE CLOs, it has trended generally upward since at least February of this year, aside from a decline between March and April.
Given the rapid surge in interest rates, these floating-rate loans have shown significant declines in debt service coverage ratios. Approximately 78.4% of the properties within the CRE CLO sector have reported a lower DSCR compared to the underwritten ratio, and CRED iQ’s analysis revealed that 62.0% of all CRE CLOs are operating below a 1.00 DSCR.
Removing the interest rate variable, CRED iQ data uncovered that 46.4% of all CRE CLO loans perform below their underwritten net operating income levels.
Among the largest issuers of CRE CLO debt over the past five years are MF1, Arbor, LoanCore, Benefit Street Partners, Bridge Investment Group, FS Rialto, and TPG, according to CRED iQ. The vast majority of the $79.1 billion in CRE CLO loans currently outstanding are structured with floating rates with three-year loan terms equipped with loan extension options if certain financial hurdles are met.
