Loan Modifications and Pool Management in a CRE CLO

Key Takeaways

• CRE CLOs are attractive exit strategies for lenders of commercial bridge loans, in part due to the flexibility the structure provides in the modification of performing loans.

• In light of adverse financial market conditions, collateral managers have been fielding an increased number of requests for modifications and relief.

• Collateral managers have a number of available options for modifying performing loans, and thoughtful modifications can help issuers manage the pool of mortgage loans to protect investors while giving borrowers flexibility in implementing their business plans.
  

Introduction

The commercial real estate collateralized loan obligation (“CRE CLO”) has, over the last decade, become an increasingly popular vehicle for securitizing commercial mortgage loans. The collateral backing CRE CLOs generally includes short-term, floating-rate commercial mortgage loans on transitional properties which, compared to loans on fully stabilized properties, generally require more attentiveness on the part of the lender. The ability to actively manage the mortgage loans in the pool is a significant reason why issuers find CRE CLOs attractive.