Blackstone has skipped a payment on a $274m hotel loan, joining the ranks of leading real estate investors that have fallen behind on debt during the coronavirus crisis.
The debt is secured on four hotels in Chicago, Philadelphia, Boston and San Francisco, which the US private equity group acquired in 2016 from Club Quarters, a membership-based hotel network that continues to operate the properties.
Blackstone made contact with the loan administrator in April to request “various modifications and forebearances”, according to a report distributed to credit market investors, which added that the properties were closed, and the loan was delinquent.
On Friday, Blackstone characterised the hotel deal as “a very small investment that had been written down prior to Covid-19 as a result of unique operational challenges”. It added: “We will continue to work with our lenders and the hotel management company to create the best possible outcome under the circumstances for all parties, including the employees.”
Some of the debt is trading at values that suggest the investors do not expect to make a full recovery. For example, the lowest-rated portion of the loan secured on the Blackstone hotels changes hands for 76 cents on the dollar, down from 100 cents at the start of March.
The US travel industry has been among the hardest hit by the coronavirus pandemic. Hotels emptied out as state and local governments tried to curtail the spread of the virus. Nearly a quarter of hotel loans packaged into commercial mortgage-backed securities, or CMBS, were past due in June, according to data provider Trepp.
Other badly affected sectors include healthcare and retail, with painful consequences for real estate investors that include some of America’s most prominent asset managers.
Colony Capital, the real estate investment group founded by Tom Barrack, said in May that its portfolio companies had defaulted on $3.2bn of debt secured by a portfolio of properties that includes nursing homes and hotels.
Brookfield, the Canadian investment group that ranks among the biggest owners of American shopping malls, has also skipped payments on its mortgages and asked lenders for forbearance.
Blackstone’s missed loan payment is a setback for the world’s biggest alternative asset manager, which has pointed to the diversity of its portfolio and its focus on sectors that have been relatively resilient during the coronavirus shutdown.
“Approximately 80 per cent of the [real estate] portfolio is comprised of logistics, high-quality office and residential assets,” Jon Gray, Blackstone’s chief operating officer, said in April. He added that logistics properties, which are a vital link in the growing businesses of online retailers such as Amazon, were “the most dominant theme”.