The collective loan portfolio of the 16 major publicly registered mortgage REITs has decreased by more than 18% over the past three years to $80.6 billion at the end of the second quarter, according to Trepp data.
Blackstone is one of the REITs slimming down. The firm had $26.81 billion in loans at the end of 2022, more than a quarter of all mortgage REIT assets. It now carries $19.71 billion in loans, a reduction of about 26%. That still accounts for about a quarter of the overall mortgage REIT portfolio.
Blackstone originated $1.4 billion of loans during the first half, a 12-fold increase from the same period last year, when it originated $103.18 million, but it received $3.4 billion in loan repayments, meaning its total portfolio continued to shrink. The private equity giant said it has another $2 billion of loans near closing, mostly in the multifamily or industrial sectors, as it reduces its exposure to office. The concentration breaks down to 27% in multifamily and 18% in industrial, up from 25% and 6% in 2022. Its office exposure has dropped from 41% in mid-2022 to 28% today.
All other REITs are taking a similar strategy, reducing their exposures to office and increasing their exposures to those other two asset classes, as noted by Trepp.
Peak activity for mortgage REITs, which originate short-term loans often against properties that are undergoing renovations or stabilization, came in 2021, when they originated nearly $50 billion of loans. In 2022, they collectively originated nearly $31 billion.
When rates started to increase and properties started facing pressure, many of these REITs turned to asset management and property originations slowed to a halt. More than $10 billion of the outstanding loans were rated as higher risk by mid-2023.
Facing losses, the mortgage REITs increased their required current expected credit loss (CECL) reserves. The rules, established following the Global Financial Crisis, require lenders to set aside any potential loss that the loan can incur during its entire term, said Trepp. REITs have built up their liquidity levels largely with proceeds from loan payments while working out problem loans.
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