Blackstone’s default on securitized commercial real estate loans is still exceptional. But the risk of further defaults could increase.
Blackstone, a publicly traded U.S. investment firm and one of the world’s largest private equity houses, is letting a commercial real estate loan go into default. Although the company would have liked to extend the term of the loan, which forms the basis of a 531 million euro commercial real estate-backed bond, by one year, it has not done so. In that time, it could have sold part of the properties and prepared another part for sale. But the refinancing proposal was not accepted.
The Handelsblatt quotes Florent Albert of Scope as saying that doubts were too great as to whether properties with high vacancy rates could be sold at appropriate valuations in the current market situation. Albert, who as co-author for a recent study examined the market with securitized commercial real estate loans, assumes that in the vast majority of cases joint solutions are being worked on to avoid the emergency.
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To be sure, Blackstone’s default on a securitized commercial real estate loan is the first of its kind in Europe since the end of the real estate bull market. But it may not be the last. Experts see the default as a harbinger of future problems for the industry. No wonder, given that last year was a difficult one with the Ukraine war, persistently high inflation, rising interest rates and the prospect of recession in many economies.
In particular, central banks’ restrictive monetary policies fueled the year-end sell-off in real estate markets in December 2022, further pushing up bond yields. This in turn had a negative impact on the real estate market and increased pressure on commercial property owners. At the end of January this year, even the European Systemic Risk Board (ESRB) publicly warned that “vulnerabilities in the commercial real estate sector in Europe” were increasing.
Even if the risk of further defaults with subsequent forced sales remains: However, hardly anyone in Europe is expecting a complete collapse of the real estate market as at the time of the financial crisis in 2007/08, writes Handelsblatt, citing Mathias Pleissner of Scope. He sees a serious difference to 2008: The banks are much better capitalized today.
