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Mortgage REITs hit the brakes on commercial lending

Blackstone, KKR arms didn’t issue any loans in the first half of 2023

Prominent Mortgage REITs Halt Commercial Loan Originations
Photo illustration of KKR Real Estate Finance Trust CEO Matt Salem and Blackstone Mortgage Trust CEO Katie Keenan (KKR, Blackstone, Getty; Illustration by The Real Deal)

As commercial lenders brace for the steady rise of bad loans, some are taking a drastic approach — halting new loans altogether.

Blackstone Mortgage Trust and KKR Real Estate Finance Trust didn’t issue any loans during the first half of the year, the Wall Street Journal reported. While the pipelines at the top mortgage real estate investment trusts were blocked for originations, existing loans were still financed.

Barry Sternlicht’s Starwood Property Trust also pulled back significantly from commercial loan originations, but didn’t stop them completely.

Mortgage REITs typically issue an average of $10 billion in loans each quarter, according to an analyst at Keefe, Bruyette & Woods. Commercial and multifamily mortgage lending is expected to decline 38 percent year-over-year to $504 billion in 2023, according to the Mortgage Bankers Association.

Although Blackstone Mortgage Trust didn’t make any loans in the first two quarters, it has made lending commitments of $900 million this year on existing loans and $2.2 billion of commitments on new loans and existing loans over the past 12 months, according to the company.

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Lenders are wary of the ongoing turmoil impacting commercial real estate, exacerbated by rising interest rates. Defaults are rising and lenders are tightening credit, operating more cautiously as the high interest rate environment persists.

When mortgage REITs pull back, commercial landlords suffer. Their options to refinance the debt coming due wane, increasing the odds for default and property loss. They may need to turn to raising equity to refinance maturing loans.

A common maneuver for mortgage REITs during times of economic uncertainty is to add to the reserves to cope with potential losses. That can put a drag on a company’s overall finances.

There are companies positioned to fill the void left by mortgage REITs. Insurance companies and nonbank lenders can dictate their terms and be choosy about their loans, since there aren’t many other players in the market. 

Some commercial mortgage lenders are piling up capital to return to the market when the situation is more favorable: Blackstone Mortgage Trust’s CEO recently touted the firm’s “war chest” for future opportunities.

— Holden Walter-Warner

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BlackstoneInterest RatesKKRMortgagesREITSStarwood