One of the main structural features of managed commercial real estate (CRE) collateralized loan obligations (CLO) transactions is the ability for the manager to acquire new mortgage assets during a reinvestment period using principal proceeds received from loans that exit the transaction. This feature provides the issuer with a stable funding source and a more cost-effective way to fund the ongoing origination of transitional loans compared to static or lightly managed transactions. However, this churn of collateral can create uncertainty due to changes in collateral composition that may occur during the term of the transaction.
KBRA had previously evaluated the amount of churn that occurred in pre-pandemic vintage CRE CLOs in our 2021 research publication, Churn Rates in Managed CRE CLOs. The issuance market subsequently experienced its busiest years in 2021 and 2022.…