{"id":1004542281,"date":"2021-07-07T04:55:00","date_gmt":"2021-07-07T12:55:00","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004542281"},"modified":"2022-12-08T16:37:51","modified_gmt":"2022-12-09T00:37:51","slug":"how-cre-clos-are-bouncing-back","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/how-cre-clos-are-bouncing-back\/","title":{"rendered":"How CRE CLOs Are Bouncing Back"},"content":{"rendered":"

The commercial real estate collateralized loan obligation sector has navigated through its first major economic upheaval and is on track to substantial growth, according to a new study from Kroll Bond Rating Agency<\/a>.<\/p>\n

Nearly a decade old, this asset class is projected to experience an outstanding 2021, with volume for the first six months of the year surpassing the $19.2 billion record high set in 2019. Over that 10-year period, $81.1 billion in CRE CLOs were issued, according to KBRA.<\/p>\n

\"\"<\/a>

Roy Chun, Senior Managing Director, KBRA. Image courtesy of KBRA<\/p><\/div>\n

For its study, KBRA assessed the performance of 3,635 loans from securitization through the May 2021 trustee remittance report date across 115 seasoned transactions issued between July 2013 and December 2020. This study population saw a cumulative payment default rate of 2.5 percent by loan count, and including modifications and maturity defaults yielded a cumulative combined default rate of 7.8 percent.<\/p>\n

\u201cEven though the study captures about 10 years of activity and provides a good overview of performance over that period, the study is also a good reflection of where the market stands today,\u201d Roy Chun, KBRA senior managing director, CMBS Surveillance, told Commercial Property Executive<\/em>. \u201cMany of the defaults occurred during the pandemic, and the stories on many of these loans and transactions are still playing out.\u201d<\/p>\n

\n

READ ALSO:<\/strong> How CRE Liquidity Reigns Despite Volatility<\/a><\/p>\n

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\u201cWe seem to be right where we left off, if you consider 2020 a pause,\u201d Chun said. And with 2021 already exceeding the full year 2019, \u201cit\u2019s hard to imagine we would have seen much higher volume had the pandemic not happened.\u201d<\/p>\n

However, in a way, the pandemic has created additional opportunities for more transitional assets, \u201cas properties negatively impacted by the pandemic \u2026 begin to stabilize and improve as the economy continues to open up and expand,\u201d Chun noted, adding that this will help drive a continuation of the strong volume.<\/p>\n

Key points <\/strong><\/h2>\n

The study\u2019s big-picture points cover payment defaults<\/a>, the importance of loan modifications, the role of maturity defaults and the sector\u2019s limited realized losses.<\/p>\n

The study\u2019s cumulative payment default rate of 2.5 percent (90 loans) reflects every loan that was at least 60 days delinquent. This, however, might be understated by roughly 200 basis points, because of certain non-defaulted loans serving as collateral in deals that were fully redeemed prior to the loans paying off.<\/p>\n

Adding in the 152 modified loans pushes the CRE CLO loan default rate to 6.7 percent. \u201cCRE CLO loans are typically secured by transitional real estate, and as a result allow more flexibility for providing modifications to borrowers that are working toward achieving their business plans,\u201d the KBRA report noted.<\/p>\n

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READ ALSO:<\/strong> CRE Loan Maturities Cushioned by Willing Lenders<\/a><\/p>\n

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Although CMBS modifications are mostly workout-related<\/a>, there\u2019s a positive side to CRE CLO loan modifications. \u201cThe flexibility to modify loans was a useful tool for CRE CLO managers to work with borrowers through some of the challenges presented by COVID-19, such as forbearances and the waivers of reserves or escrows,\u201d the report said.<\/p>\n

\"\"<\/a>

Nitin Bhasin, Senior Managing Director, Co-Head CMBS Ratings, KBRA. Image courtesy of KBRA<\/p><\/div>\n

Adding the 41 loans with maturity defaults brings the cumulative combined default rate to 7.8 percent. Because CRE CLO loans -commonly have one or more annual extension periods, \u201ca performing or nonperforming matured loan may not be considered equivalent to a fixed rate CMBS loan default that is not structured with available extension options,\u201d KBRA explained.<\/p>\n

Realized losses among the study population\u2019s loans were \u201cextremely limited,\u201d totaling only eight loans, the report states. \u201cThe low number of loans with losses is likely influenced by the managers\u2019 ability to repurchase credit-impaired loans,\u201d according to the report.<\/p>\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Volume has already topped 2019\u2019s record high of $19.2 billion, according to Kroll Bond Rating Agency.<\/p>\n","protected":false},"author":882,"featured_media":1004491009,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,21825,45527,23891,21742],"tags":[39245,51173],"class_list":["post-1004542281","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-finance","category-keyword-optimized","category-national","category-latest","tag-kroll-bond-ratings-agency","tag-roy-chun"],"acf":[],"yoast_head":"\nHow CRE CLOs Are Bouncing Back - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/how-cre-clos-are-bouncing-back\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How CRE CLOs Are Bouncing Back\" \/>\n<meta property=\"og:description\" content=\"Volume has already topped 2019\u2019s record high of $19.2 billion, according to Kroll Bond Rating Agency.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/how-cre-clos-are-bouncing-back\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2021-07-07T12:55:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-09T00:37:51+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2020\/11\/investment-3-courtesy-of-Gerd-Altmann-via-Pixabay.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"620\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Scott Baltic\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/how-cre-clos-are-bouncing-back\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/how-cre-clos-are-bouncing-back\/\",\"name\":\"How CRE CLOs Are Bouncing Back - 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