According to a report by CRED iQ, the distress rate for commercial real estate collateralized loan obligations (CLOs) has risen to 10.3% as of June 30, an increase of 60 basis points from the previous month. This rate includes any loans that are reported as delinquent for at least 30 days, past their maturity date, or under special servicing due to financial difficulties.
The distress rate for CRE CLOs has been on an upward trend since February of this year with a brief decline in March and April. The recent surge in interest rates has resulted in significant decreases in debt service coverage ratios for these floating-rate loans. In fact, approximately 78.4% of properties within the CRE CLO sector have reported lower DSCRs compared to their initial underwritten ratio.
Upon removing the variable of interest rates, data from CRED iQ shows that nearly half (46.4%) of all CRE CLO loans are performing below their initially projected net operating income levels.
Some notable issuers responsible for a large portion of CRE CLO debt over the past five years include MF1, Arbor Realty Trust Inc., LoanCore Capital Markets LLC., Benefit Street Partners LLC., Bridge Investment Group Holdings LP., FS Rialto Investments LLC., and TPG Real Estate Finance Trust Inc.. Most outstanding CRE-CDO loans consist primarily structured with floating rates and three-year terms with options available for loan extensions if certain financial criteria are met.
