A CRE CLO (commercial real estate collateralized loan obligation) is a securitization vehicle the underlying assets of which are short-term (usually three to five years), floating-rate loans collateralized by transitional properties. CRE CLOs are actively managed by an asset manager who is typically permitted to add and remove loans during a specified reinvestment period. CRE CLOs are structured with several tranches (i.e., senior, mezzanine and equity) of rated debt issued to investors and are often used as a balance sheet financing tool for the loan originator.

Trepp reports that in 2021, 51 CRE CLO deals were issued, amounting to a total securitized balance of just over $45 billion. In 2022, CRE CLO issuance totaled $30.3 billion, according to CRE Finance Council. DBRS Morningstar attributes the 2022 drop in CRE CLO issuance to sharply widening spreads, rising interest rates and macroeconomic disruptions related to the war in Ukraine.

According to DBRS Morningstar, in Q2-2022, multifamily collateral accounted for 80.1 percent of all loans that contributed into CRE CLOs, an increase from 75.0 percent in the prior quarter. Lodging made up the second-highest proportion (6.8 percent) of loans contributed into CRE CLO deals, surpassing office loans, which typically have been the second-highest property type contributed, according to the report.

Last Updated on March 18, 2023 by Ramin Seddiq