CRE CLO Loan Default and Loss Study: Rising Defaults and Modifications Amid Limited Losses

As the commercial real estate (CRE) collateralized loan obligation (CLO) asset class enters its 15th year, its performance has reflected many of the challenges that have affected the broader CRE market over the past six years. Since KBRA published its inaugural CRE CLO Loan Default and Loss Study in July 2021 (see CRE CLO Loan Default and Loss Study), market conditions have changed significantly, warranting an updated review of the asset class. The prior study was released during a record year for issuance, with CRE CLO volumes reaching $45 billion as the market rebounded from the economic disruption caused by the COVID-19 pandemic. Since then, inflationary pressures, rapid interest rate hikes, compressed multifamily operating margins, and evolving office space demand have significantly affected CRE CLO collateral, which consists primarily of floating rate loans…