Many in CRE have either wondered when the distressed fire sales would come up for grabs or thought that distress won't appear in a big way. There have been signs that there might be more distress than is obvious and that some is getting masked over. 

New research from Morningstar points shows increased evidence that there is distress surfacing and that collateralized obligation (CLO) lenders are working quickly to head off disaster and the need for absolute write-offs where they can.

As of the second quarter in 2023, "the overall loan modification rate for CRE CLOs was 11.81%, a 532-bp increase from 6.49% in the prior quarter," the firm wrote. "The most common loan modification flag, according to investor reporting package data, was the nondescript other category, totaling $5.80 billion by loan UPB [unpaid principal balance] and 60.4% of the total modified loan UPB. This is a 61.03% ($4.10 billion) increase from March 2023 when the flag represented 41.1% of the total modified loan UPB."