KBRA Releases Research – Churn Rates in Managed CRE CLOs: Vintage Effect

NEW YORK--(BUSINESS WIRE)--KBRA releases research analyzing the churn rate in commercial real estate (CRE) collateralized loan obligations (CLO) transactions. One of the main structural features of CRE CLO transactions is the ability for the manager to acquire new mortgage assets during a reinvestment period using principal proceeds received from loans that exit the transaction. This feature provides the issuer with a stable funding source and a more cost-effective way to fund the ongoing origination of transitional loans compared to static or lightly managed transactions. However, this churn of collateral can create uncertainty due to changes in collateral composition that may occur during the term of the transaction.

KBRA had previously evaluated the amount of churn that occurred in pre-pandemic vintage CRE CLOs in our 2021 research publication, Churn Rates in Managed CRE CLOs. The issuance market subsequently experienced its busiest years in 2021 and 2022. These newer vintages also experienced churn, albeit in a very different interest rate environment as the federal funds rate rapidly spiked from nearly 0% to over 5%, before tapering slightly over the last year. As such, KBRA sought to examine if there were any meaningful changes in the level of collateral turnover in managed CRE CLOs, particularly in the more recent vintage deals.

To do so, we examined all managed CRE CLO transactions issued between 2017 and 2024 that had at least one year of seasoning through March 2025. In total, we gathered sufficient data on 94 deals, including the 37 transactions used in our previous report. We assessed the dollar volume of loans that fully paid off during a transaction’s reinvestment period within the first 12, 18, 24, and 30 months, as applicable (the “churn rate”). It is assumed that these proceeds would be used to acquire new mortgages.

Key Takeaways

• The average churn rate during the first 12, 18, and 24 months was 19.3%, 32.8%, and 46.3%, respectively, which was meaningfully slower than the churn rates in our prior report (24%, 43.3%, and 63.7%, respectively).
• The churn rates for the 2022 vintage deals, which were mostly issued before the fed funds rate increases, stand out as the lowest among any vintage at each period. The 2021 vintage experienced the second-slowest churn in its 18- and 24-month period. Both vintages started with loans originated during a low-interest rate environment and subsequently faced a period of rapid rate increases.
• The churn rates at 30 months for the 22 deals with reinvestment periods of 30 months or longer approached or exceeded 100% for the 2017-2020 vintages, indicating an almost entirely new collateral pool by the time those deals’ reinvestment period ended. The 2022 vintage remained an outlier, with only a 36.7% rate by month 30.
• There was wide variability in the results by transaction, even within the shelf. For example, the 18-month churn rate for all transactions ranged from 2.2% to 94.7%, with an average of 32.8%.
• Similar to the prior study, loans with longer terms and greater unfunded components exhibited lower churn rates. However, unlike the prior study, the higher multifamily exposure in the 2020-24 vintage deals was associated with lower churn rates. This could have been influenced by the preponderance of multifamily loans originated to lower stabilized debt yields prior to the rapid rate rise in 2022-23, which needed more time to stabilize or refinance.

Click here to view the report.

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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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