By Michelle Conlin and Matt Tracy
NEW YORK (Reuters) – Shares of commercial real estate finance company Blackstone Mortgage Trust fell 10% on Wednesday as the company cut its dividend by 24% amid continued pressure from vacancy-plagued office space.
It’s the latest sign of mounting problems for commercial real estate, which analysts say is in jeopardy for decades to come as American workers continue to stick to their work-from-home habits, as they did during the pandemic. That’s left large swaths of office space empty, while interest rates remain high in the Federal Reserve’s proposed higher rates that will remain on the market for a long time.
“For Blackstone to come out and cut dividends, I can see how that would weigh on some people's minds,” said Stephen Buschbom, research director at Trepp, an industry data provider. “I wouldn't be surprised if there was a domino effect across the industry if the largest player had to cut dividends,” he said.
Blackstone recorded a net increase of $140 million in reserves for current expected credit losses. The company said 55% of its U.S. office space “is on watch list or impaired, although higher-quality offices continue to exhibit liquidity.”
Investors remain deeply concerned about the looming bankruptcy of the commercial office space sector, as nearly $1 trillion of the $4.7 trillion in outstanding commercial mortgages does not come due until 2024, according to the Mortgage Bankers Association.
This impending maturity comes against a backdrop of falling real estate values and lower rental income. 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 share buyback.
The company reported a quarterly loss of $61.06 million.
According to the company, credit solutions will deliver greater profit potential in the long term.
The gloom in the office sector is spreading to the entire industry. In February, KKR Real Estate Finance Trust cut its dividend due to bad loans.
(Reporting by Michelle Conlin and Matt Tracy; Editing by Megan Davies and Chris Reese)
