Blackstone Inc. is the latest in many companies that have stopped paying their mortgages due to difficult market conditions.
Blackstone is a major player in the Nordic market, having bought the landlord Sponda Oy for almost €1.8 billion in 2018. The company recently failed to pay back a €531 million ($562 million) bond backed by a portfolio of Finnish offices and stores.
The Finnish real estate market has taken a hit with rising interest rates, and the coronavirus pandemic has pressured landlords.
Difficult market conditions
The real estate market in Europe has seen a drop in prices as buyers hold off on purchases due to uncertainty over how much interest rates will increase. This has led to a big gap between bids and offers, reducing the number of deals and putting pressure on owners whose loans are coming due.
Lenders are pushing for faster sales because they are worried about how far prices could go down. However, borrowers would rather have more time to find better home offers. So far, the drop in prices has yet to cause a lot of people to lose their credit, so some creditors are betting that fast sales can still make sure they get paid back in full.
In the US, property values have dropped more, and interest rates have been higher for longer, causing owners like Pacific Investment Management Co.’s Columbia Property Trust and Brookfield Corp. to stop paying their mortgages. The shift to working from home because of the pandemic has hurt the US office market the most.
Blackstone asked bondholders for more time to sell assets and pay off the debt, but the request was refused. Fitch Ratings downgraded the notes in December, citing a weak macroeconomic outlook and limited appetite for lending against secondary-quality illiquid assets.
The loan, which Citigroup Inc. and Morgan Stanley created, is backed by 45 properties in Finland, most of which are offices. About 45% of the positions in the portfolio are open, which is about 10% more than before the pandemic.
Weight on Blackstone
The war in Ukraine has caused a new wave of volatility in the market and travel restrictions, making it harder for Blackstone to sell the properties. Blackstone has expressed disappointment at the bondholders’ decision but still has full faith in the core Sponda portfolio and its management team.
The Nordic real estate market was among the first to start going down due to the global financial crisis, and its effects are still being felt today. Investors are worried because of landlords’ use of short-term debt and the prevalence of cross-ownership, which has further weakened the market.
Blackstone’s inability to pay back its debt is a sign of the difficult market conditions and serves as a warning to other landlords. It remains to be seen how the situation will resolve itself, but it is clear that lenders and borrowers alike need to be prepared to face the consequences of a volatile market.
