Posted on 03/03/2023 3:17:30 AM PST by EBH
Blackstone has defaulted on a $562 million bond backed by Finnish landlord Sponda Oy, which it acquired in 2018, something Blackstone said was exacerbated by Russia’s war against Ukraine.
Blackstone had sought an extension from holders of the notes to allow for time to liquidate assets in the Sponda Oy’s retail and office portfolio to pay back the debt — which Blackstone bought for $1.9 billion in 2018 — but with ongoing warfare disrupting market conditions and sales, bondholders voted against the investment firm’s bid for more time, Bloomberg first reported.
Loan servicer Mountstreet said the debt would be transferred to a special servicer with Blackstone holding out hope that the value of Sponda Oy’s retail and office assets will help them prevail.
“This debt relates to a small portion of the Sponda portfolio,” Blackstone said in a 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 noteholders. 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.”
Sponda Oy’s portfolio includes about 3.6 million square feet of office and retail properties spread across Finland. But the war in Ukraine, along with the continued office fall-out from COVID disruptions, made it harder for Blackstone to pay back the debt on the properties.
Finland’s potential membership in NATO, which became more likely Thursday morning, has been considered a key deciding factor in how the conflict with Russia plays out, with the country’s proximity to St. Petersburg offering the alliance a tactical advantage in the event of widespread conflict.
Fitch downgraded the notes in early December, highlighting the “macroeconomic outlook.” The downgrade made it difficult to find lenders willing to help Blackstone refinance against “illiquid assets” with the maturity date on the debt quickly approaching in February.
The recent trend of short-term debt being used by Scandinavian investors has also had onlookers on edge considering its vulnerability to rising interest rates, something which has also been exacerbated by the war in Ukraine.
Blackstone’s stock saw a rapid 3 percentage point dip Thursday morning but quickly recovered some of the progress it has made since reaching a 52-week low of about $72 per share in the last days of December 2022.
You are thinking of Blackrock. Blackstone is a Private Equity firm catering to the super wealthy
Yep, the “default” is simply a financial mechanism Blackstone is using to force a renegotiation of their deal. Nothing more.
Sigh, no it was not. Blackrock is a firm that focuses on low cost, passive investments primarily for 401ks and IRAs. It manages over $10 Trillion, overwhelming majority are retail investors retirement accounts, largely invested in public market equities that trade on the NYSE or Nasdaq. Blackstone is and has always been large private equity investments for the super wealthy and has traditionally invested in real estate and owns primarily private companies and investments and do not trade in the open market.
I said it more than 2 years ago, short anything long in office leaseholding and ownership.
This is a trickle, my wife and I get calls all the time… so and so is interested in talking to you. Okay. They require relo. No thank you. 6 weeks later, would you be interested if it was remote?
The only people who will be required to go to the office are the worker bees or the people that want to. I know no one with the option not to go that voluntarily goes.
Centralized downtown office spaces are going to be bloody the next 3-10 years as leases expire and footprints reevaluated.
It's inevitable
Ping to FreedomPoster’s reminder just a few short weeks ago.
I have been reading where some are already looking to convert office space into apartment/condo residential space.
Not a bad idea, but incredibly expensive. In places where living space has been at a premium we could see a major shift and landlords in some of those older rentals getting the short end of the stick.
Things could get very interesting or major parts of cities are going to decay.
Heads Up! Blackstone IS NOT Black Rock!
FWIW
Did take the 5 seconds to look it up, LOL. Yeah it looks like the division from Blackstone which become Blackrock wasn’t similar to JPMorgan spinning out Morgan Stanley. Have a nice day.
Reits went through this once before in the late 1970’s. The liquidation discounts were pretty heavy. Next up will be defaults on leveraged leases for ship financing. Cruise line and Tankers hardest hit.
Lehman and Blackstone’s similar stock price, market cap, and reliance on the real estate market (an illiquid market by its very nature). And it was liquidity that killed Lehman, not leverage. The cost of capital exceeded their ability to service the debt each day). But Lehman would have been fine if people were left to eat their losses. It was just $60 Bn market cap.
What cracked the market was contagion. The counterparties demanded higher value and more collateral to do business with each other.
Here is an article just starting to wargame the contagion of Blackstone to others.
BLACKSTONE’S $562 MILLION CMBS DEFAULT MAY SIGNAL RISKS FOR REAL ESTATE INVESTORS
INDRAJEET GIRAM·MARCH 3, 2023
WHAT WILL BE THE IMPACT OF BLACKSTONE’S MOVE ON THE ECONOMY?
Investors may become more cautious about investing in real estate or demand higher returns to compensate for the potential risks. This could lead to a slowdown in the industry and make it more challenging for firms to secure financing for their real estate projects.
Moreover, Blackstone’s default could also result in losing investor confidence in the company’s ability to manage its real estate investments effectively, leading to a decline in its market value.
In the long run, the default could prompt Blackstone and other firms to reconsider their investment strategies and risk management practices to minimize the potential impact of interest rate fluctuations on their real estate holdings.
BlackRock is also involved in various other businesses, including financial technology, risk management, and advisory services. The company operates in over 100 countries and has over 16,000 employees globally.
Blaming russia for Blackstone’s poor management.
Blackstone / Blackrock. Same corrupt types running both.
562M / 1.9B = about 30%, yet...
“This debt relates to a small portion of the Sponda portfolio,”...
Something doesn't smell right about this.
Good lord, why do financially illiterate post with such confidence? Lehman ran into liquidity issues because of leverage. When you are levered 50:1, it only takes a 2% loss to wipe you out. When you take a 10%+ loss, at 50x, you are more than wiped out, which was the case with Lehman, as to sell the assets at the new market value would mean instant bankruptcy and unable to pay its creditors and investors. They lost all liquidity because they couldn't sell ANYTHING
Blackstone is not going anywhere. They are one of the best capitalize companies on the planet and nearly every one of their real estate holdings is held solo (ie no contagon risk). That was not the case for Lehman at all.
They were started as separate companies. The Blackrock guy went to Blackstone for seed money and owned a good chunk of BR for a while, but not the same thing. They’ve been completely separated for three decades at any rate (vs just a handful of years with partial ownership). Their strategies have never had any overlap.
Thanks for the education.
Agree 100% . I was wondering the same thing after reading your response..
Good day and keep your money in those REIT. You are going to be fine. Until your not.
But, you’ve got it all figured out.
Thanks for the info
I’m not invested at all in Blackstone or Blackstone funds. I am just 1) financially savvy 2) know BX really well and how they are structured and 3) know corporate finance in general really well - which is why I make roughly $700k a year at this point.
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