At a glance
- Umsted said growth in multifamily lending does explain how many new CRE CLO issuers have come to market.
- The loan documents have changed as volume grew: covenant testing and occupancy requirements are now written into deals, Umsted said.
- On credit, Umsted says multifamily has continued to perform, including on default and debt coverage.
Multifamily loans make up an estimated 70% to 75% of CRE CLO collateral this year, according to Parker Umsted, managing director and head of securitization at SitusAMC. He ties that concentration to first-time issuers: lenders that already hold a warehouse line and an originated pool of multifamily loans, for whom a CLO is an attractive execution.
Umsted said growth in multifamily lending does explain how many new CRE CLO issuers have come to market. Multifamily credit has long lived with the GSEs; as it moved toward conduit, CMBS and CRE CLO execution, issuers underwrote the loans to industry standards, which he says makes them more flexible in where they can be distributed across the capital markets.
The loan documents have changed as volume grew: covenant testing and occupancy requirements are now written into deals, Umsted said. "When you see a rush toward one property type, you tend to worry about the possibility of increased defaults," he said. For a borrower, that is the trade in moving a multifamily loan out of the agency wrapper — a wider set of executions, with performance tests attached.
He dates the issuer influx to the pandemic, when office and hospitality conversions to multifamily pulled lenders into the CLO space.
On credit, Umsted says multifamily has continued to perform, including on default and debt coverage. He expects that to hold because the sector has proven more adaptable than other securitization asset types.
The same firm's quarterly investor survey, reported here in September, put real estate back at No. 1 in buyer and seller preferences, with the two converging and capital discipline pointing to a narrow, selective recovery. Umsted's comments add the securitization-side view: multifamily concentrated enough to be the market's primary collateral, with conduit execution now sitting alongside the agency channel.
The change in loan documents is the concrete part to track — occupancy requirements and covenant tests on multifamily loans that have long been agency business. If Umsted's share holds near 70% to 75%, the CLO market's credit question this year is largely a multifamily question.
Reported by the Real estate debt desk from Commercial Observer. Published . Corrections