According to a report by Kroll Bond Rating Agency (KBRA), the distressed loan rate for commercial real estate collateralized loan obligations (CLOs) originated before 2023 has increased by almost 400% year-over-year, reaching 5.4% at the end of that year compared to just 1.4% in 2022.
During this same period, KBRA also noted a more than doubling of loan modifications, with a rate of 16.7%, up from only 7.9% in late-2022.
Of all CRE sectors, multifamily properties performed better than average with a distress rate of only
4.3%. However, office properties had the second-highest concentration and experienced higher levels of distress at both ends -12.3%, and modification rates -35%.
The decline in performance is attributed to rising interest rates and challenges faced by business plans for multifamily and office properties which make up over four-fifths or approximately $13 billion worth outstandings loans according to KBRA’s data analysis.
Multifamily sector has been particularly affected due to slower or negative rent growth coupled with increasing operating costs including insurance expenses while offices continue facing demand shifts resulting from weak leasing activity.
As per KBRA’s findings many deals have failed their interest coverage tests as delinquent loans led them towards undercollateralization protection tests failing recently on multiple occasions during last few months alone.”Distressed CLO Increases Nearly
400%” was originally published on Connect CRE but these words should not be included when rewriting it using active voice while maintaining proper grammar and punctuation rules.
