Blackstone’s battered mortgage fund slumps as empty offices intensify pressure

By Michelle Conlin and Matt Tracy

NEW YORK (Reuters) – Commercial real estate finance company Blackstone Mortgage (NYSE:) Trust saw shares drop 10% on Wednesday as the firm cut its dividend 24% in the face of continued strain from vacancy-ravaged office spaces.

It is the latest sign of mounting woe for commercial real estate, which analysts say is set for a multi-decade reckoning as American workers stay rooted in their pandemic-era remote work habits, leaving wide swaths of office space empty at a time when interest rates remain elevated in the Federal Reserve’s higher-for-longer world.

“For Blackstone (NYSE:) to have to come out and cut dividends, I have to imagine that’s going to weigh on some people’s minds,” said Stephen Buschbom, research director at Trepp, an industry data provider. “It wouldn’t surprise me to see ripple effects throughout the industry when the biggest player is having to cut dividends,” he said.

Blackstone recorded a $140 million net increase in reserves for current expected credit losses. The firm said 55% of its U.S. office space is “watchlisted or impaired, though higher-quality office continues to show liquidity.”

Investors remain deeply worried about the specter of a coming commercial office space collapse, as nearly $1 trillion of the $4.7 trillion of outstanding commercial mortgages come due in 2024, according to the Mortgage Bankers Association.

This looming maturity comes against a backdrop of declining property values and lower rent rolls. Blackstone cut its dividend to $0.47 per share in the third quarter, down from $0.62 paid in the second quarter. The company also authorized a $150 million stock buyback.

The company reported a quarterly loss of $61.06 million.

Loan resolutions will unlock earnings potential over time, the company says.

The office sector gloom extends to the entire industry. In February, KKR Real Estate Finance Trust slashed its dividend amid souring loans.