Blackstone, KKR Mortgage REITs Have Stopped Writing New Loans As Default Risk Rises

Major mortgage REITs are pulling back from lending due to the difficult climate for the real estate industry, with Blackstone Mortgage Trust and KKR Real Estate Financial Trust originating no loans to new borrowers during the first half of 2023, The Wall Street Journal reports, though they are continuing to provide financing to existing customers.

Another major player in the sector, Starwood Property Trust, has reduced its lending in recent quarters.

Mortgage real estate investment trusts have originated roughly $10B in loans per quarter in recent years, Keefe, Bruyette & Woods analyst Jade Rahmani told the WSJ.

“Hardly anyone has made new loans” more recently, Rahmani said.

These companies are slowing mortgage lending in an effort to protect their finances from defaults, which have grown more common as interest rate hikes have made it harder for borrowers to keep up with payments.

The decline in mortgage REIT lending comes amid an overall drop in CRE lending. The Mortgage Bankers Association forecasts that total commercial and multifamily mortgage lending will fall to $504B this year, which would represent a 38% drop from the total in 2022.

"Higher and volatile interest rates, uncertainty about property values, and questions about some property fundamentals have led to an impasse in property sales and mortgage originations activity this year,” MBA Head of Commercial Real Estate Research Jamie Woodwell said in a statement.

Even multifamily lending, a hot property type for the last couple of years, is expected to drop to $299B in 2023, a 38% decline from last year, according to the MBA.

In a paper released in July, Morningstar warned that real estate loans in the multifamily sector are looking “especially wobbly.”