The distress rate for Commercial Real Estate Collateralized Loan Obligations (CRE CLO) saw a significant increase in August, rising from 19 percent in July to 28 percent. This marks the strongest monthly movement within a credit segment this year, based on data from CRED iQ. In contrast, the distress rate for Single-Asset, Single-Borrower (SASB) Commercial Mortgage-Backed Securities has remained largely unchanged at around 22 percent since June.
Both figures can be traced back to the same two vintage years: loans from 2021 and 2022 now account for $3 billion of CRE CLO special servicing balance and $1.7 billion for SASBs, out of total outstanding volumes of $27 billion and $17 billion respectively. The identified distresses in both cases are concentrated in a few large, specific transactions and are not market-wide. In contrast, distress rates for Conduit, Freddie Mac, and Single-Family-Rental loans have remained nearly constant over the past eight months, all staying below 5 percent.
CRE CLO: High Proportion in a Portfolio
The FSRIA 2021-FL3 deal contributes most significantly to the distresses, with $353 million in multifamily collateral now in special servicing across seven loans. This deal recorded a new default approximately every eight weeks throughout 2026. In August, two more were added: River Crossing in Roswell, Ga. ($49 million), and Grace Abernathy Apartments in Sandy Springs, Ga. ($42 million), both linked to 2026 maturities. Together with the transfer of the 415 Premier Apartments in Evanston, Ill. ($40 million) in July, this one deal has shifted $131 million into distress since spring.
ARCLO 2022-FL1, a similar Sun Belt Bridge Loan CLO, added the Residences at Medical in San Antonio ($27 million) and Pebblebrook Apartments in Redlands, Calif. ($12 million) in this cycle, accounting for $210 million in newly affected collateral in August alone. Five transactions now comprise 38 percent of the total CRE CLO special servicing balance, and the top ten transactions hold 58 percent. Geographically, 44 percent of the affected volume is concentrated in Texas, Florida, and Georgia alone – these are bridge loans underwritten on rental growth that did not materialise before the variable rate plans expired.
SASB: Concentration on Four Portfolios
SASB distresses are instead concentrated in four single-loan transactions involving office and lab properties, accounting for 64 percent of the $1.7 billion balance in this category. BXHPP 2021-FILM, a $525 million loan secured against seven Hollywood studio and office properties, was transferred in July. ALEN 2021-ACEN ($203 million, Three Allen Center, Houston) and LIFE 2021-BMR ($190 million, life science space in Cambridge, Mass., San Diego, and the San Francisco Bay Area) were both transferred earlier in the year.
The latest addition, BSREP 2021-DC, was transferred on 10 August: a $162 million loan secured against eight office buildings in the greater Washington, D.C. area. Its size essentially offset the volume that SASB resolved elsewhere this summer, which is why the rate has not changed. California, New York, and D.C. now house two-thirds of the distressed SASB balance. Office and mixed-use loans maturing in the next nine months are priced 170 to 180 basis points above their existing interest rates, representing the largest refinancing gap among all property types.
