KBRA Releases Research – CRE CLO Loan Default and Loss Study: Rising Defaults and Modifications Amid Limited Losses

NEW YORK--(BUSINESS WIRE)--KBRA releases a new commercial real estate (CRE) collateralized loan obligation (CLO) CMBS default and loss study that updates our previous observations on the credit behavior of CRE CLO loans.

As the CRE CLO asset class enters its 15th year, its performance has reflected many of the challenges that have affected the broader CRE market over the past six years. Since KBRA published its inaugural CRE CLO Loan Default and Loss Study in July 2021 (see CRE CLO Loan Default and Loss Study), market conditions have changed significantly, warranting an updated review of the asset class. The prior study was released during a record year for issuance, with CRE CLO volumes reaching $45 billion as the market rebounded from the economic disruption caused by the COVID-19 pandemic. Since then, inflationary pressures, rapid interest rate hikes, compressed multifamily operating margins, and evolving office space demand have significantly affected CRE CLO collateral, which consists primarily of floating rate loans typically secured by transitional assets. Following a sharp decline in issuance during 2023 and 2024, market activity rebounded in 2025, with more than $30 billion of new issuance. Momentum has continued into 2026, which is on track to exceed last year's volume.

This update includes the performance of 6,919 loans (the study population) from 227 CRE CLOs issued between July 1, 2013, and March 31, 2025, with loan performance observed through the March 2026 trustee remittance report date (study period). The population had a combined default rate of 10.4%, consisting of 4.9% cumulative payment defaults (60+ days delinquent at any time) and an additional 5.5% cumulative maturity defaults (those not already captured in the payment default bucket). To present a more comprehensive measure of loan performance, loan modifications can be combined with defaults to create a broader distress metric (collectively, the distress rate). On this basis, the cumulative CRE CLO loan distress rate more than doubles to 22.9%. In the prior study, the cumulative payment default rate was 2.5%, while the distress rate was 7.8%.

Key Takeaways

• The cumulative payment default rate over the study period was 4.9% (341 loans). The rate reflects all loans that were at least 60+ days delinquent at any time during the study period.
• The combined default rate increases to 10.4% when including all additional maturity defaults (5.5% rate, 378 additional loans).
• An additional 12.5% of loans (863 additional loans) were modified. The resulting cumulative default plus modification rate—which portrays a more encompassing picture of distress—sits at 22.9%.
• Realized losses among loans in CRE CLOs remain relatively limited. KBRA identified only 33 loans that reported principal losses while outstanding in the related CRE CLO. The losses occurred across 19 deals with an average loss severity of 41.7%. This overall number of losses is relatively low considering that 86.5% of the defaulted loans and 74.2% of modified loans have been resolved through repayment or repurchase from the transaction. None of the losses have impacted any issued notes or securities beyond the most subordinate unrated class.

Some Other Notable Observations

• A significant portion of the study population (90%) is no longer outstanding, with 64.5% paid off by the borrower, purchased out at par by the CLO sponsor, or disposed prior to deal redemption (collectively referred to as "paid off"), and 25.5% paying off at deal redemption.
• The study population was weighted heavily toward loans originating from 2018 to 2022 (69.8%). This period coincides with the vintages whose performance was most impacted by the pandemic starting in 2020 and its knock-on effects, including high inflation, the unprecedented interest rate increases starting in mid-2022, and office demand destruction. As a result, these vintages comprised 87.9% and 88.1% of the defaulted and modified loans, respectively.
• Nearly all the defaults (92.9%) occurred since March 2020, with 67.2% occurring since 2023, which is unsurprising given the previously mentioned series of disruptive events. The modifications follow a similar pattern with 96.2% occurring since 2020 and 72.9% occurring since 2023.
• Originations in 2022 fared the worst, with a default rate of 18.1% and a distress rate of 44.2%, followed by 2021 (13.6% and 33.9%, respectively).
• The combined default rates across the five most prevalent property types were as follows: office (15.3%), lodging (13.3%), retail (12.5%), multifamily (10.2%), and industrial (2.4%). The distress rate exhibited a slightly different ranking with a disproportionately larger share of lodging and multifamily loans being modified: lodging (34.4%), office (26.2%), multifamily (24.2%), retail (19.7%), and industrial (12.3%).
• The study population included 38 CRE CLO sponsors, after adjusting for some consolidation and acquisitions. Across the 22 issuers with five or more CRE CLOs, the default rate averaged 9.5% (ranged from zero and 29.4%) compared to the overall population rate of 10.4%. The distress rate for these issuers averaged 22.2%, on par with the study population rate (22.9%).

Click here to view the report.

Recent Publications

• KBRA Releases CRE CLO Default and Loss Study
• CMBS: CMBS Single-Borrower Default and Loss Study Update
• Conduit CMBS Default and Loss Study Update: 2.0 Begins to Make Its Mark

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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