Following a dramatic reduction, the commercial real estate collateralized loan obligation (CRE CLO) market saw its distress rate rise by 80 basis points to 13.2% in our latest print. Originations in the sector continue to be robust, so a clear picture is murky at best. Let’s dig in into the data.
Investors hoping for a third consecutive reduction in the CRE CLO distress rate are left a bit disappointed as the benchmark added 80 basis points to close at 13.2% in the May print.
The underlying metrics were mixed with the special serving rate shaving 30 BPS to 7.1% while the all-important delinquency rate added 130 BPS reaching 11.0%.
Sector Velocity
Similar to last month, our research team widened the aperture a bit to examine the velocity of the CRE CLO sector over the past year. Here are some metrics from our study:
Total year-to-date CRE CLO issuance totals $10.5 billion across 11 deals. As a comparison, during the first four months in 2024, CRE CLO volume only totaled $2.2 billion (3 deals), meaning CRE CLO issuance velocities have increased 377% when compared to last year. Indeed, it could be argued that CRE CLO is already hot!
Payment Status
Looking across a wider analysis of payment status reveals ongoing challenges. 64.4% of CRE CLO loans have surpassed their maturity date (up from 63.1% last month). 36.6% are classified as “performing matured –down from 37.3%. This suggests that many borrowers are exercising extension options or negotiating month-to-month arrangements to avoid default.
Precisely half (50.0%) of CRE CLO loans have surpassed their maturity date and are not performing, a new record. This metric was 25.6% in our January print.
14.3% of CRE CLO loans are current—down from 16.8% last month.
Delinquent Loans (Pre-Maturity): Account for 21.3% which is the third consecutive month-over-month increase.
These figures reflect a market grappling with the aftermath of loans originated in 2021-2022, when cap rates were compressed, valuations were elevated, and interest rates were historically low. Many of these loans, structured with floating rates and three-year terms, are now hitting maturity walls in a dramatically different economic environment.
Case Study: Norterra Canyon Apartments
A real-world example illustrates the pressures facing CRE CLO borrowers. The $58.6 million Norterra Canyon Apartments loan, backed by a 426-unit multifamily property in Las Vegas, highlights maturity-related challenges. The loan was added to the servicer’s watchlist in November 2024 due to pending loan maturity. Set to mature in May 2025, the loan transitioned to non-performing mature status in May 2025.
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