CRE CLO Market Volumes Increase

Lenders have increasingly taken advantage of strong investor appetite for short-term, floating-rate debt by bundling bridge loans into CRE CLOs, according to an article in Asset Securitization Report. With high supply and high demand, CRE CLO spreads have become increasingly competitive. One of the more active issuers, Arbor Realty Trust, saw a 63 basis-point decline in funding costs between its first and last deal of 2017, with the weighted average spread on the third deal, completed in December 2017, only 136 basis points above the one-month Libor.

This evaluation mirrors thoughts expressed on the CRE CLO panel conducted at SFIG Vegas 2018, where Kunal Singh, a managing director and head of U.S. CMBS capital markets at J.P. Morgan, stated that, “this may be the most liquid and well-bid part of the [CMBS] market.” With this in mind, many posit there is still room to grow for a couple reasons. First, many market participants believe the CRE CLO market bears little resemblance to its pre-crisis form, with current deals containing relatively simple structures and high-quality collateral. Additionally, not all rating agencies currently rate CRE CLOs, and those that do only look at the senior tranches, hence a number of participants see room to grow if more agencies start looking at this product.

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