How Do CRE CLOs Work in Commercial Real Estate?
A CRE CLO is a commercial real estate collateralized loan obligation. CRE CLOs are a financing vehicle with short-term, floating-rate loans issued against a pool of commercial properties in transition. Transitional assets can include anything from multifamily properties undergoing major renovation, or an office property with considerable near-term lease turnover.
While other securitized products such as CMBS loans are mostly static, CRE CLOs are actively managed by an asset manager. They typically have a reinvestment period of five years. During this period, managers can add or remove loans from the portfolio. As managers are more in control of the aggregated loans, there’s an added layer of security to CRE CLOs when compared to a CMBS product.
CLOs are structured as a series of tranches, including:
Senior tranches (rated AAA and AA)
Mezzanine tranches (rated A, BBB, and BB)
Cash flows follow a type of waterfall structure. The most senior tranche is paid first, and any equity tranche receives its distribution last. Any losses in the portfolio are first felt by the most junior tranches.
General CRE CLO Loan Terms
Loans per portfolio