Blackstone Defaults on €531 Million Nordic Property CMBS

(Bloomberg) — Blackstone Inc. has defaulted on a €531 million ($562 million) bond backed by a portfolio of offices and stores owned by Sponda Oy, a Finnish landlord it acquired in 2018.

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The private equity firm had sought an extension from holders of the securitized notes to allow time to dispose of assets and repay the debt, according to people with knowledge of the plan. Market volatility triggered by the war in Ukraine and rising interest rates interrupted the sales process and bondholders voted against a further extension, the people said, asking not to be identified as the sales process was not public.

The security has now matured and has not been repaid, prompting loan servicer Mount Street to determine a default, according to a statement Thursday. The loan will now be transfered to a special servicer, it added.

“This debt relates to a small portion of the Sponda portfolio,” a Blackstone representative said in an emailed statement. “We are disappointed that the servicer has not advanced our proposal, which reflects our best efforts and we believe would deliver the best outcome for note holders. We continue to have full confidence in the core Sponda portfolio and its management team, whose priority remains delivering high-quality retail and office assets.”

Nordic real estate has been at the forefront of Europe’s real estate correction after a long period of relative calm following the global financial crisis. Investors have been spooked by Nordic landlords’ use of relatively short-term debt, which has made them more vulnerable to rising rates. The level of cross-ownership in the sector, where multiple real estate companies own stakes in one another has also exacerbated concerns.

A representative for Blackstone declined to comment on the interrupted sales process.

Rising interest rates have hit real estate investors hard, with buyers hesitant about underwriting new deals until a clearer picture of how far rates will rise emerges. That’s led to wide gaps between bids and offers, crimping deal volumes and putting pressure on owners with loans that are maturing.

Blackstone acquired Sponda for almost €1.8 billion in 2018.

Fitch downgraded the notes in December, saying that “weak macroeconomic outlook and limited appetite for lending against secondary quality illiquid assets” create significant challenges for refinancing.

The loan was originated by Citigroup Inc. and Morgan Stanley and is secured against 45 properties in Finland, most of which are offices. At the time of the downgrade, €297.1 million of the senior loan remained outstanding, according to Fitch.

The portfolio is about 45% vacant, having risen about 10 percentage points higher during the pandemic, according to the report. Travel restrictions then hampered Blackstone’s sales efforts before the war in Ukraine unleashed a fresh wave of volatility.

–With assistance from Alastair Marsh.

(Updates with portfolio details from eighth paragraph.)

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