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Renowned short seller Carson Block, founder of Muddy Waters, has taken a bearish stance against Blackstone Mortgage Trust, signaling concerns about prolonged challenges in the commercial real estate sector. In a report titled “Here Comes the Cliff!,” Block highlights the real estate investment trust’s vulnerability to a “perfect macro storm” characterized by increasing interest rates and elevated office vacancies.
Despite corporate efforts to encourage employees back to offices, office vacancies reached a record high of 13.3% in August, coupled with a surge in overdue commercial real estate loans amid declining property values and rising interest rates.
Muddy Waters anticipates that a significant portion of Blackstone Mortgage Trust’s borrowers, estimated between 70% and 75%, may struggle to refinance or meet loan obligations in 2024. This predicament could lead to substantial losses for the REIT, ranging from $2.5 billion to $4.5 billion, posing a serious risk to its $4 billion market capitalization.
While the REIT has managed to extend and modify loans, Block suggests this practice cannot be sustained indefinitely. He anticipates that actual losses will become apparent in the second half of 2024, potentially forcing Blackstone Mortgage Trust to reduce its dividend, currently near 12%.
Despite the possibility of future interest rate cuts from the Federal Reserve, which could alleviate the commercial real estate sector, Muddy Waters deems it “too little, too late.” Blackstone Mortgage Trust’s stock declined by 8% following the release of Muddy Waters’ report.
Responding to the report, a spokesperson for Blackstone Mortgage Trust stated that the REIT is well-positioned to navigate the current environment and criticized Muddy Waters’ report as “self-interested,” “misleading,” and “designed solely…for the short seller’s own benefit.”
Carson Block’s Muddy Waters has gained prominence for its successful short positions against various companies, both domestic and foreign. Founded in 2010, the investment firm has a track record of making profitable bets, including notable actions against China’s Rino International, St. Jude, and Corestate Capital Holding SA. While Block acknowledges the toll of corporate lawsuits related to his negative reports, he continues to express concerns about the challenges posed by short selling in the asset management industry.
