Blackstone Originations Plummet As Transaction Volume Slows

Blackstone Originations Plummet As Transaction Volume Slows

New York Mortgage REIT Proposes $400 Million Loan Offering to Prepare for Rebound in Deal Flow


Steve Plavin, Blackstone Mortgage Trust's president and chief executive. Photo: Blackstone Mortgage Trust

Steve Plavin, Blackstone Mortgage Trust’s president and chief executive. Photo: Blackstone Mortgage Trust

Blackstone Mortgage Trust’s loan origination and acquisition volume plummeted in the first quarter as one of the nation’s largest nonbank commercial real estate lenders had its pipeline of deals slowed by market volatility and reduced transactions at the end of last year.

The falloff in the quarter ended March 31, according to the company’s preliminary results, led it to originate or acquire $699 million of loans, down from $3.5 billion of loans originated in the previous quarter and $1.9 billion in the same quarter a year ago. 2018 was the REIT’s most active year since its launch six years ago.

The mortgage REIT, based in New York, had tried to prepare the market for the news in February during its fourth-quarter earnings conference call: “Late in the quarter the significant debt and equity market volatility led to a slowdown in real estate transaction activity. Our [fourth quarter] transactions were already well advanced but the [first quarter] origination pipeline slowed,” Steve Plavin, Blackstone Mortgage president and chief executive said at that time.

The S&P 500 and Dow Jones Industrial Average indexes dropped about 8.7% in December 2018, their worst December performance since 1931 and their biggest monthly loss since February 2009.

Plavin added that it takes from 60 to 90 days for investors to move back from off the sidelines following such a disruption in the equity markets.

“The capital markets are now quickly recovering and we expect transaction volume to pick up as the year progresses,” Plavin said. “Also the real estate opportunity funds that comprise the most active segment of our client base have reported over $100 billion of dry powder in their investment vehicles with even more capital commitments being raised. The deployment of that equity should continue to help propel our business.”

Blackstone Mortgage investors took last week’s preliminary results in stride. The company’s stock closed Friday at $34.84 per share, still close to its 52-week high.

Blackstone Mortgage disclosed the preliminary, unaudited results in a regulatory filing in connection with a proposed $400 million senior secured term loan financing transaction. The company also reported raising another $65 million in the first quarter as it stocks its coffers for future deals.

Last week, Moody’s Investors Service assigned a Ba2 senior secured rating to the proposed term, the second-highest rating assigned to speculative grade obligations.

The Ba2 rating reflects in part the strength of the collateral backing Blackstone Mortgage’s loans, Moody’s said.

Blackstone Mortgage “has a strong record of operating profitability and asset quality performance over recent years, comparable to rated peer nonbank commercial real estate lenders,” Moody’s said.

It also has a longer operating history than most of its peers, which Moody’s viewed as positively.

The REIT’s portfolio largely comprises first mortgages on properties in major coastal markets with the highest concentration in office space at about 45%.

“The company’s exposure to the volatile hotel sector, 23%, is high compared to certain peers, but the company is able to leverage the strong institutional knowledge and experience of Blackstone in this sector to invest selectively, with low average loan to value and strong cash flow performance,” Moody’s said.