That’s why investors should be cautious of floating-rate commercial real-estate loans packaged into bond deals, according to credit researcher Lea Overby and her team at Barclays.
As an example, Overby on Thursday highlighted a report that Houston-based Nitya Capital has been looking to sell about 40% of its multifamily portfolio, because interest rate hikes by the Federal Reserve have made its floating-rate debt more expensive to manage, according to Real Estate Alert. The last decade has given rise to so-called “CRE CLOs,” a kind of fund where billions of dollars in floating-rate loans on commercial properties gets packaged into bond deals. They are a distant cousin of CDOs that made headlines in the wake of the 2007-2008 global financial crisis.