CRE CLO Distress Rates Jump to 28 Percent
Commercial real-estate collateralized loan obligation distress rates rose to 28 percent in August, creating opportunities for bargain hunters as interest rates strain multifamily property owners.
The distress rate for commercial real-estate collateralized loan obligations (CRE CLO) rose to 28 percent in August, up from 19 percent in July. This surge is primarily driven by floating-rate loans issued in 2021 when property values were at their peak and borrowing costs were low. Recent interest-rate increases by the Federal Reserve System have further strained borrowers, particularly multifamily syndicators in Sunbelt cities who planned to renovate and flip apartment buildings.
Specific troubled assets include properties held by Ashcroft Capital in Georgia and Texas, as well as The Morgan in Austin, Texas, owned by CAF Capital Partners, LLC. At The Morgan, rental income currently covers only 15 percent of mortgage payments. Data from CRED IQ and analysis from Morningstar, Inc. highlight the growing instability, with Morningstar identifying high delinquency rates in the FS Rialto 2021-FL3 loan portfolio.
While lenders previously modified loans to avoid losses, the market is shifting toward distress. Distressed multifamily apartment deals accounted for 4.7 percent of all such transactions in the second quarter, a significant increase from 1.5 percent a year prior.
