- CRE CLO issuance reached $40.2B in the first 10 months of the year, up 66% from last year, driven mostly by apartment bridge loans.
- Multifamily makes up nearly three-quarters of CRE CLO debt issued this year, while office fell to 2% of issuance through August from as much as a quarter before 2020.
- Distress is rising, with the CRE CLO rate jumping to 28% in August from 19% in July, though five deals account for 38% of special servicing.
Apartment owners are borrowing short-term to wait for cheaper money, and that is pushing CRE CLO issuance to $40.2B through October, according to Bisnow.
That is up 66% by dollar volume from last year, Bisnow reported, citing Trepp data.
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A Bet on Lower Rates
Borrowers facing maturities are taking short CRE CLO loans. They are betting that rates will fall before those loans come due, according to Bisnow.
Benefit Street Partners’ David Henschke said many of these properties could secure fixed-rate loans today. In his view, the CLO bridges the market rather than addresses a problem with the buildings.
Why Equity Is the Alternative
Trepp’s Andy Boettcher said new equity costs more than three years of lease-up and stabilization. He described CRE CLOs as a bridge for buildings that opened during the supply wave but missed their lease-up targets.
CRE CLO debt also floats, so interest bills rise when rates do. Meanwhile, Morgan Stanley calls it the fastest-growing segment of nonagency CMBS.
Collateral Has Shifted
Multifamily accounts for nearly three-quarters of CRE CLO debt issued through October. Also, 57% of the underlying assets were built in the past five years, according to Trepp data cited by Bisnow.
Morgan Stanley analysts wrote in September that office collateral has fallen sharply. Before 2020, office accounted for as much as 25% of collateral. However, it represented just 2% of issuance through August.
Distress Is Climbing, but Concentrated
Cred iQ figures show CRE CLO distress jumped to 28% in August, up from 19% a month earlier. This marked the steepest monthly increase among deal types in 2026.
Just five deals account for 38% of the segment’s special servicing balance. In addition, $3B of loans from 2021 and 2022 sit in special servicing. Henschke said investors have shrugged off the distress because sponsors hold the first-loss position.
Zoom Out
New issuers keep arriving. We covered when Castlelake entered the CRE CLO market with a $1.1B bridge loan deal.
The strain also extends to conduit loans. We reported that the special servicing rate hit 11.74%.
What’s Next
Henschke expects modest issuance through year-end, below 2021’s record $45.4B. Some issuers are holding deals for January. Meanwhile, investors are waiting for the Federal Reserve’s December meeting.
