October 1, 2026

Distress in commercial real estate collateralized loan obligations (CRE CLOs) climbed sharply this summer, and apartment loans issued in 2021 drive much of the increase. A Wall Street Journal column by Carol Ryan, published September 22, 2026, draws on data from CRED IQ, Morningstar, and MSCI to show how that stress is starting to reach the sales market. This post summarizes those findings and what they mean for valuation work on multifamily property.

How CRE CLOs work

A CRE CLO is a form of securitized lending. A sponsor pools commercial mortgages and sells interests in the pool to investors. Many of these loans carry floating interest rates, which means the rate moves with market benchmarks. Borrowers often use them for transitional properties, such as a building that needs renovation before it can lease fully. Cash flow stays uncertain until the work ends and new tenants move in.

The distress numbers

According to CRED IQ, the distress rate in CRE CLOs reached 28% in August, up from 19% in July. The column attributes most of that increase to loans issued in 2021, a year when property values and borrowing costs set records in opposite directions: values peaked and rates bottomed.

Why 2021 loans face pressure now

Two factors converge on these loans.

  1. Many CRE CLO loans start with a three-year term and include two one-year extension options. Loans issued in 2021 are reaching the end of that schedule.
  2. The Federal Reserve raised rates the week before the column ran, its first increase in three years, and the column notes hints of more to come. Floating-rate borrowers feel each increase directly.

Many of these borrowers are multifamily syndicators. They bought apartment buildings during the pandemic, often in Sunbelt cities, and financed the purchases with floating-rate debt. Their plan was to renovate units, raise rents, and sell at a profit.

One loan pool under stress

The column points to a pool called FS Rialto 2021-FL3. It began with 26 floating-rate mortgages. Morningstar analysis shows that many of the performing loans have since paid off. The remaining pool holds 18 mortgages on apartment buildings and one hotel. CRED IQ reports that 53% of the outstanding loan balance is delinquent.

Lenders have already stepped in on most of the loans. Morningstar found that more than 90% of the mortgages received a modification or some form of forbearance, an agreement in which the lender pauses or reduces payments for a time. CRED IQ analysis shows that five of the properties now face foreclosure proceedings.

Two property examples

The column cites two properties where income fell well short of the debt.

  1. Ashcroft Capital borrowed against five apartment buildings in Georgia and Texas. Morningstar reports average rents of $1,423 per unit in the first quarter, compared with $1,953 in the lender’s projection. Income from the properties covers 57% of the mortgage payment.
  2. The Morgan, a 1984 apartment building in Austin, sold to CAF Capital Partners in 2021. Occupancy stands at 65%. Loan performance documents show rents and fees cover 15% of the mortgage payment. The borrower has paused renovation work, and the column describes the Austin apartment market as oversaturated.

Alex Killick, a managing director at CWCapital Asset Management, says renovation of workforce apartments has reached a point where upgraded units do not always command higher rent.

How lenders are responding

Rich Hill, a senior managing director at Principal Asset Management, says owners with a credible plan to raise operating income may receive a loan modification. He describes owners who have waited for lower rates without a solid turnaround plan as past the point of no return.

Distressed sales are increasing

For the past few years, lenders extended or modified loans to avoid taking losses in forced sales. The column reports that only owners of troubled office buildings showed willingness to accept a loss. That pattern now shows signs of change. MSCI data show that distressed sales made up 4.7% of multifamily deals in the second quarter, up from 1.5% in the same quarter a year earlier. The column expects further rate increases to push more owners toward a sale and create more buying opportunities.

What this means for valuation

The following points reflect general appraisal practice, not findings from the column.

  1. Distressed transactions may enter the pool of comparable sales. An appraiser needs to confirm the conditions of each sale, including the seller’s motivation, before deciding how much weight the price deserves.
  2. Underwriting assumptions from 2021 may no longer match current performance. Rent and occupancy analysis should rest on in-place income and current market evidence.
  3. Lenders, attorneys, and receivers working on troubled loans should state the intended use and intended users at engagement, since those answers shape the scope of the assignment.

Teel Valuation Group prepares appraisals and appraisal reviews for lenders, attorneys, fiduciaries, agencies, and property owners across commercial, multifamily, land, and special-purpose property.

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Source: Carol Ryan, “Looking for Real-Estate Bargains? Watch These Apartment Loans,” The Wall Street Journal, September 22, 2026.