Blackstone Defaults On $562MM CMBS As It Keeps Blocking Investor Withdrawals From $71BN REIT

Now that soaring rates have burst the commercial real estate bubble, the carnage is coming fast and furious.

This morning Bloomberg reports that Wall Street’s largest commercial real estate landlord, private equity giant Blackstone, has defaulted on a €531 million ($562 million) bond backed by a portfolio of offices and stores owned by Sponda Oy, a Finnish landlord it acquired in 2018.

While the PE firm had sought an extension from holders of the securitized notes to allow time to dispose of assets and repay the debt, the surge in market volatility triggered by the war in Ukraine and rising interest rates interrupted the sales process and bondholders voted against a further extension, the Bloomberg sources said.

And since the security has now matured and has not been repaid, loan servicer Mount Street has determined that an event of default has occurred, according to a statement Thursday. The loan will now be transferred to a special servicer.

“This debt relates to a small portion of the Sponda portfolio,” a Blackstone representative said in an emailed statement. “We are disappointed that the servicer has not advanced our proposal, which reflects our best efforts and we believe would deliver the best outcome for note holders. We continue to have full confidence in the core Sponda portfolio and its management team, whose priority remains delivering high-quality retail and office assets.”

And while Blackstone is understandably trying to minimize the news, the PE firm clearly continues to scramble to stabilize the bleeding in its massive real estate portfolio and on Wednesday it said that it had blocked investors from cashing out their investments at its $71 billion real estate income trust (BREIT), as the private equity firm continues to grapple with a flurry of redemption requests.

BREIT said it fulfilled redemption requests of $1.4 billion in February, which represents only 35% of the approximately $3.9 billion in total withdrawal requests for the month, the firm said in a letter to investors as Reuters first reported.

The silver lining is that the total BREIT redemption requests in February were 26% lower than the approximately $5.3 billion reached in January, the firm said. However, should rates keep rising it is likely that the March redemption flood will be higher again.

“While gross redemptions for February are consistent with prior management commentary, the overarching data continue to align with our view around decelerating retail-oriented product organic growth broadly,” Credit Suisse analysts, led by Bill Katz, said in a note to investors. As we previously reported, Blackstone has been exercising its right to block investors’ withdrawals since November last year after requests hit a preset 5% net asset value of BREIT, which is marketed to mostly high net worth individuals.

Credit Suisse downgraded its rating of Blackstone’s stock to underperform in November partly because of the rise in investor redemptions from BREIT. Blackstone’s shares were down 0.25% at $90.57 per share in afternoon trading on Wednesday. The stock lost 43% of its value last year.