Issuance of commercial real estate Collateralized Loan Obligations (CRE-CLOs) has grown significantly in 2018. KKR is the latest private equity firm to tap the commercial real estate securitization market for short-term bridge loans.
Many of the bridge loans that ValueXpress originates end up in CRE-CLOs. Bridge loans are conventional primarily floating-rate first mortgage loans secured by unstabilized income-producing commercial real estate properties that have vacant or underutilized space that is being marketed to tenants. Often these properties need to complete exterior or interior capital improvements to attract new tenants. Bridge loans often provide the capital for exterior or interior capital improvements, tenant improvements, leasing commissions and an interest reserve (if required).
On November 28, KKR issued a $1-billion CLO of 30 properties. The pool consisted of 50% office properties, 40% multifamily properties and the balance industrial properties. Of the properties, 30% are located in the New York/New Jersey MSA. The KKR issue followed the first issuance by Money360, which floated a CRE-CLO in July collateralized by 48 loans with a total balance of $330 million.
Demand for CLO bonds is increasing due to rising short-term rates making the primarily floating rate returns from CLOs very attractive to investors. In 2017, 17 CRE-CLOs deals from 12 different issuers totaled $7.37 billion, according to Commercial Mortgage Alert. For 2018, issuance is expected to more than double to over $15 billion.
For a Bridge Loan quote, contact Dennis Suh at ValueXpress.