28% of CRE CLO Loans Are Now Distressed. Here Is What That Does to Your Books.

Douglas Kohn, CPA

6 days ago

4 min read

On September 8, Commercial Observer published CRED iQ's latest numbers on commercial real estate CLO loans, and they were not pretty. The distress rate jumped from 19% in July to 28% in August. Texas, Florida and Georgia hold 44% of the distressed balance. Much of it traces back to floating-rate multifamily loans made in 2021 and 2022, when business plans assumed rent growth that never showed up.

The wave behind it is large. Multi-Housing News reports about $300 billion of multifamily debt maturing in 2026 alone, and $806 billion through 2028. As Berkadia's Josh Bodin put it, the problem is that "refinance math" is not penciling at today's rates.

At Ultramar Real Estate, our fractional CFO team sees the same pattern with owners: all the focus goes to the lender conversation, and nobody stops to ask what the loan's status does to the financial statements. It changes a lot. Here is what to watch.

1. Your loan may have to move to current liabilities

If you break a covenant (a DSCR test, a debt yield test, a rate cap requirement) and the lender has not waived it, the loan is generally shown as a current liability when the lender can call it. That is the rule in ASC 470-10. A $40 million loan jumping to "current" wipes out working capital on paper and can trip covenants on your other loans.

2. Going concern is now a real question

Under ASC 205-40, management has to judge whether there is substantial doubt the company can meet its obligations for one year after the statements are issued. A maturity you cannot refinance is exactly that kind of doubt. Your lender, your investors and your auditor will all ask. Have a 12-month cash forecast ready before they do.

3. The property may need an impairment test

ASC 360 requires a recoverability test when something signals that a property's carrying value may not be recoverable, such as a big drop in market value or a plan to sell early. If the undiscounted cash flows fall short of book value, the asset is written down to fair value. A loan going to special servicing is often the moment that test becomes unavoidable.

4. Loan modifications have their own accounting

Here is a common mistake. In 2022 the FASB removed troubled debt restructuring accounting for lenders through ASU 2022-02. That change did not apply to borrowers. If your lender grants a concession because you are in financial difficulty, such as an extension, a rate cut or a forbearance, you still follow ASC 470-60. Depending on the terms, that can even create a gain on the books. It needs to be booked correctly and disclosed.

5. Trapped cash is not operating cash

Many loans have cash management triggers that sweep rent into a lender-controlled account once performance slips. That money is restricted. It should be shown separately on the balance sheet, and your operating budget should assume you cannot use it.

Where a fractional CFO fits

Most owners do not need a full-time CFO. They need CFO-level work at the moments that matter, and a loan heading toward special servicing is one of those moments. A fractional CFO can:

Build and own the covenant calendar, so a DSCR or debt yield miss is spotted months early, not in a servicer's letter.
Prepare the 12-month cash forecast and the going concern memo your auditor and investors will ask for.
Model the options side by side: a paydown, an extension, a rescue capital raise or a sale, with the accounting result of each.
Sit in on lender and special servicer calls with numbers that hold up, and make sure any modification is booked and disclosed correctly.
Report to your partners and investors in plain language, so bad news arrives early and with a plan.

That is the work Ultramar Real Estate's fractional CFO team does every day for real estate owners, developers and construction companies, at a fraction of the cost of a full-time hire.

What to do this quarter

Pull every loan agreement and build a covenant calendar with test dates and thresholds.
Run your own DSCR and debt yield tests monthly, before the servicer does.
Build a 12-month cash forecast and keep it current. It is the backbone of any going concern analysis.
Get a broker opinion of value early so an impairment test is not a surprise.
Talk to your accountant before you sign a modification, not after.

Ultramar Real Estate provides outsourced accounting and fractional CFO services for real estate owners, developers and construction companies. If your loan is heading toward a maturity or a covenant test, we can help you get the numbers ready before the lender asks for them.

Douglas Kohn, CPA

Sources

Liam Mulcahy, "CRE CLO Distress Accelerates in August," Commercial Observer, September 8, 2026.
Patricia Kirk, "Is a Distressed Sales Wave on the Horizon?," Multi-Housing News, April 8, 2026.
FASB, ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures, March 31, 2022.
FASB Accounting Standards Codification: ASC 205-40 (Going Concern), ASC 360 (Property, Plant and Equipment), ASC 470-10 (Debt) and ASC 470-60 (Troubled Debt Restructurings by Debtors).