Blackstone Mortgage is in Trouble? Defaults and Liquidity Crisis Predicted
Muddy Waters, the prominent short-selling firm led by Carson Block, has announced a bearish bet against Blackstone Mortgage Trust, a real estate investment trust (REIT) that lends to commercial properties. Block revealed his position at the Sohn Investment Conference in London, warning of a potential liquidity crisis for the trust due to the challenging conditions in the commercial real estate market.
Blackstone Mortgage: The Risks of Commercial Real Estate Lending
Blackstone Mortgage Trust (BXMT) is a REIT that specializes in originating and purchasing senior loans secured by commercial properties, such as office buildings, hotels, and retail centres. The trust is managed by Blackstone Group, one of the world’s largest alternative asset managers. The trust has a net book value of loans at $23.2 billion, according to its latest quarterly report.
Block argues that the trust is exposed to significant risks due to the unfavourable economic environment impacting the commercial real estate sector. He cites the rising borrowing costs, the shifting demand for office spaces amid the pandemic, and the looming debt maturity wall as the main challenges facing the trust and its borrowers. He also raises concerns about the trust’s ability to refinance and collect its loans, suggesting that the trust may need to increase its collateral and cut its dividend.
Block’s report also reveals that the trust has been modifying some of its troubled loans by extending maturities and allowing payment in kind, a practice that allows borrowers to pay interest with more debt instead of cash. Block claims that this strategy may only provide temporary relief and mask the true extent of the trust’s problems.
The Impact of Block’s Announcement
Carson Block is known for his high-profile short positions against companies that he believes are overvalued, fraudulent, or mismanaged. He has targeted companies such as Sino-Forest Corp, a Chinese forestry company that was accused of inflating its assets, and various European real estate firms, such as Stroeer SE and Solutions 30 SE, that were alleged to have accounting irregularities.
Block’s announcement of his short position against Blackstone Mortgage Trust has already had a negative impact on the trust’s stock price, which plunged by nearly 4.2% in New York trading following his comments. The trust’s stock has also underperformed the broader market and the REIT sector in the past year, losing about 13% of its value.
Blackstone Mortgage Trust operates separately from Blackstone Real Estate Income Trust (BREIT), another Blackstone entity that invests in commercial properties and has faced its own challenges, such as limiting withdrawals for 13 consecutive months. The commercial real estate sector, in general, is facing a challenging outlook, with over $650 billion in property debt maturing in 2024, according to Bloomberg.
Conclusion
Muddy Waters, the renowned short-selling firm, has publicly declared a short position against Blackstone Mortgage Trust, a REIT that lends to commercial properties. The firm’s founder, Carson Block, has cited a potential liquidity crisis for the trust due to the unfavourable economic conditions impacting the commercial real estate market. Block has estimated that the trust could face losses between $2.5 billion and $4.5 billion, wiping out its equity. Block has also questioned the trust’s accounting practices and dividend sustainability. Block’s announcement has already affected the trust’s stock price, which dropped by about 4.2% in New York trading following his comments.
Disclaimer
The information contained in this article is intended for informational and educational purposes only. It should not be construed as financial, investment, or trading advice
