This story seems like it should be a bigger deal:
Blackstone (NYSE:BX) has defaulted on part of a €531M bond backed by a commercial portfolio owned by Finnish property investment firm Sponda, which it acquired in 2017.
The private equity firm has repaid almost half of that figure, closer to €300M, according to a person familiar with the matter.
Currently €297.1M of the loan remains outstanding, according to ratings agency Fitch. The loan is secured against 45 properties in Finland, most of which are offices and the rest are stores.
Blackstone (BX) earlier sought an extension from holders of the securitized notes so that it could sell the assets and repay the debt, Bloomberg reported citing people aware of the matter. The commercial mortgage-backed security has since matured, without being repaid.
A Blackstone (BX) spokesperson told Seeking Alpha that “this debt relates to a small portion of the Sponda portfolio. We are disappointed that the servicer has not advanced our proposal, which we believe would deliver the best outcome for noteholders.”
Translation: “Shut up and let us force our losses on you rather than taking them ourselves.”
Though off in Finland, this story should probably receive more notice due to the “mortgage-backed” angle.
Remember the 2008 Subprime Meltdown, fueled by easy taxpayer-backed Fannie Mae money and bundled subprime mortgage securities? And how all sorts of banking fatcats got bailed out and never paid a price for their shenanigans?
Well, mortgage backed assets never went away, they just moved into commercial real estate. There’s untold trillions of dollars in Commercial Mortgage-Backed Securities (CMBS) across the world, and almost no one is keeping track of them. The average retail investor probably knows less about CMBS now than they did about subprime mortgages in 2008.
And you know one of the hardest-hit sectors following the Flu Manchu lockdowns? Commercial real estate. A whole lot of companies figured out that a whole lot of their work force can work from home, freeing them from having to pay expensive rent on office space.
Add to that the fact that the way CMBS are structured has immediate negative consequences on several cities. Because the rules of many CMBS state that the value of a property doesn’t need to be reevaluated as long as the asking price per square foot doesn’t change, commercial real estate spaces stay vacant for years rather than lowering their prices, screwing would-be renters and shrinking tax bases. (Louis Rossmann has been ranting about this for years.)
Letting valuation get too out-of-whack with reality you get bursting bubbles and market panics. Blackstone Group is the largest commercial real estate owner in the United States. And they’ve been having other financial difficulties.
Blackstone Inc’s (BX.N) fourth-quarter distributable earnings fell 41% year-on-year as the world’s largest manager of alternative assets said on Thursday it cashed out fewer investments across key portfolios.
Blackstone has been dealing with rising redemptions at its flagship real estate income trust (BREIT), prompting the private equity firm to exercise its right to block investor withdrawals at 5% of the quarterly net asset value of the fund.
That’s not exactly a sign of unassailable strength.
Blackstone also gives political donations generously to both parties. Oh, and Chuck Schumer’s son-in-law works there. And Blackstone’s president Jonathan Gray and executive chairman Tony James were both big Biden backers in 2020.
I am very far indeed from being an expert on how Blackstone has structured its various holdings. I suspect that its various funds and trusts and CMBS are all well-siloed and isolated from each other, which is the smart way to do things. But The Biden Recession That Dare Not Speak Its Name, falling real estate prices, frozen rental prices and huge shift in the need for commercial real estate all point to some very difficult challenges for Blackstone to navigate.
Given the amount money Blackstone has spread around to the Chuck Schumers of the world, expect that there are going to be a whole lot of swamp creatures ready and willing to make any serious Blackstone financial problem into a big problem for the America taxpayer.
Tags: bailout, Blackstone Group, Chuck Schumer, Commercial Mortgage-Backed Securities (CMBS), Democrats, Finland, Joe Biden, Jonathan Gray, Louis Rossmann, Sponda, Tony James
[…] EVERYTHING IS GOING SWIMMINGLY: Blackstone Defaults: Subprime Meltdown 2? […]
The self-righteousness and victim blaming by Blackstone is nauseating. No, Blackstone, the best outcome isn’t for the bond holders to take it on the chin and allow you to keep the money you borrowed without full repayment.
The best outcome is for Blackstone to repay its debts. Just as it the principle of repaying one’s debts applies to student loans it applies to private companies as well.
The second best outcome is for the bond holders to stand their ground and force Blackstone default. Blackstone will properly take a hit to their credit, their ability to issue future bonds rightly impaired as who on Earth would buy a bond from Blackstone again.
The worst outcome would be for the bond holders to relent, roll over and allow Blackstone to minimize the consequences to their refusal to pay off their debt, which they willingly offered and agreed to.
I think you need to show some sympathy for the ‘fatcat” banker devils of 2008. Our Dem-dominated government pushed very, very, very hard to force bad loans on the banking industry, and lost their minds if anyone suggested that a meltdown was possible – that Fanny and Freddie weren’t just the most financially stable entities on the planet, or that they might be supporting bad loans. It was a vote-winning move to get people into home ownership, if they could afford it or not, and too many legislators were in tight with the loan originators and middlemen who could then sell the bad loans they were forced (or chose) to make to Fannie and Freddy. If the wonder twins (F&F) had oversight, and didn’t pick up bad loans, the originators would have had to stop making them, even if the government (and community organizers) were pushing. Given the “force majeure” on financial institutions forced into making loans by our elected democrats, I think it was appropriate to grant the banks *some* relief. And yes it cost the taxpayer, but too many taxpayers elected the idiots who thought creditworthiness did not matter at best, and at worst were just hopelessly corrupt. To be fair, mostly the folks who voted for the scumbags weren’t the ones paying the bills at the end of the day. At one point there was a lot of good info on the internets documenting how the left was responsible for the meltdown, but it is starting to be a long time ago. Here is a Doug Ross post from ’09 on the meltdown that I think encapsulates a good part of the problem:
https://directorblue.blogspot.com/2009/03/meltdown.html
https://soxthecat.substack.com/
As the CFO at a credit union most of what I bought in investments in the last 5 years was CMBS. I believe all I bought was backed by apartment complexes, but I am going to to check with my succesor to see what she has bought in the last 2 years.
Consider also how much residential real estate has been bought up by corporations like BlackRock that is funded by short-term rate loans. Their cost of funds has gone up by at leased 4%. They also must in the position to have to seel assets to have the cash flow to pay their loans. That will accelerate the collapse in home prices as in 2009.
All the CMBS I saw were backed by Fannie and Freddie. There was more CMBS available to buy than MBS. All that I bought were variable rate, so all those apartment complexes are paying 4% more, or some AIG type firm that did the interest rate swap on the fixed rate the apartment complex paid is hurting badly.
Could be a worse collapse in the housing and commercial real estate markets than the 2008-2009 collapse.
Our Dem-dominated government pushed very, very, very hard to force bad loans on the banking industry, and lost their minds if anyone suggested that a meltdown was possible
Gosh, one of our Seattle City Councilmembers worked for Bill Clinton’s administration as it forced those poisoned loans on bankers during that period. Yet the Council is so far-left now that he frequently appears as a reasonable one.
Don’t believe a word these people say, when they claim they were just trying to help people buy homes for themselves. They knew better. This was not accidental, and what happened in 2008 was foreseen and expected. Hell, doesn’t anyone remember Bush saying exactly what would happen, only he got overruled by the Democrats in 2003?
Franklin Raines, Jamie Gorelick. Both of them were key players, and both of them made millions off of Fannie Mae.
Anyone who wants a real insight into what this country has been going through since around 1990 needs to look into Gorelick’s career with and after the Clinton Administration. She’s been too damn close to too many things that “went wrong” for it to be accidental. The woman was key to the whole process of stovepiping and deliberate damage done to the intel process which might have prevented 9/11. Which was done disingenuously as all hell, because the crap that she was directly responsible for preventing, namely things like the fusion intelligence centers, have all been embraced with fervent joy by the Democrats; and, abused like a mo’fo.
She is either an enemy of the people of these United States, or she’s the unluckiest and least competent government employee, ever. One of the two; I do not see any other options.
She left Fannie Mae with like 26 million dollars, and not for all that much work, either. She assured Congress and the public that there were no reasons for concern, which was used by Congressional Democrats to stop Bush from taking steps to cool down the housing market.
None of this was accidental. It was deliberately done, with malice aforethought. Stupid bastards.