Short seller Block says he’s even ‘more bearish’ on Blackstone Trust

NEW YORK: Short seller Carson Block said his firm has grown “more bearish” on Blackstone Mortgage Trust, citing troubles with multifamily properties.

The Muddy Waters founder expects the publicly traded trust to cut its dividend in the second half of this year, he said in an interview with Bloomberg Television.

Block said he suspects that the property market’s woes are probably in the “early innings” and that the tumult may spread beyond office buildings.

“This kind of reminds me of 2007,” he said, noting that there was a moment after the failure of Bear Stearns hedge funds where the general market sentiment was that ‘there’s been deleveraging, everything’s okay’. And it turned out not to be.”

Investors have become more concerned about office and apartment buildings after borrowing costs soared. Offices have been reeling from the rise in remote work since the start of the pandemic.

The apartment sector is facing distress, with many owners piling into those bets during the easy-money era, buying properties at high prices.

Now, a glut of supply has pressured rents in certain cities, adding to the predicament.

In the past 12 months through February, apartment values have slumped 9%, while offices are down 14%, according to real estate data provider Green Street.

Block, meanwhile, has sought to take advantage. He said in December that he took a short position in the Blackstone Trust, which makes loans collateralised by commercial real estate, and that it faced a possible liquidity crisis.

Muddy Waters is more certain now than “in early December that the second half of this year is going to be problematic,” for the trust, he said on Tuesday.

“Initially, we were only focused on office, but we’ve come to the view that a lot of multifamily real estate is probably quite troubled, and so there’s a decent bit of that in the Blackstone portfolio.”

The Blackstone vehicle increased liquidity throughout 2023 to “near-record levels and reduced leverage while maintaining strong earnings”, a trust spokesman said.

“The results demonstrate the resilience of the business model amidst a challenging backdrop,” he said. “Looking ahead, we are well-positioned to strategically manage our portfolio while capitalising on emerging opportunities.”

The trust has also maintained its quarterly dividend of 62 US cents.

One initial critique by Block was the sheer number of interest rate swaps that have “obscured serious deterioration” in the trust’s loan book.