Quarterly U.S. CRE CLO Report: Uptick in New Issuance Does Not Portend a Year-End Celebration as Performance Declines in Q3 2023 and Q4 Issuance Looks Sluggish

As expected, commercial real estate collateralized loan obligation (CRE CLO) issuance in Q3 2023 picked up with four transactions, totaling $2.99 billion. Issuance came from AREIT 2023-CRE8, BSPRT 2023-FL10, PFP 2023-10, and VMC 2023-PV1. The third quarter easily posted an increase, coming off of a dismal second quarter that only saw two transactions and less than $1.0 billion of issuance. With issuance being down severely for five consecutive quarters, a new normal has emerged with quarterly volume averaging just above $2 billion and only four transactions.

DBRS Morningstar expects Q4 2023 issuance to be lower than Q3 2023, as issuers are taking longer to originate loans and ultimately accumulate critical mass to execute a CRE CLO transaction. The modest spike in volume in the third quarter may have represented several quarters of origination volume by issuers, so with the latest transaction, it will take time for them to accumulate enough collateral for the next transaction.