Muddy Waters, a hedge fund, is warning that Blackstone’s New York-listed Mortgage Trust could run out of cash.
Carson Block, , chief executive officer of Muddy Waters, revealed on Wednesday the company had started shorting its stock. He said that soured commercial loans might trigger a liquid crisis.
Block, a powerful investor, is now in direct conflict with Stephen Schwarzman, the founder of Blackstone. This clash underscores the increasing worry surrounding the commercial real estate industry.
Mr Block warned commercial property companies that had borrowed money from Blackstone’s trust might struggle to repay the cash due to the rising interest rates, which have increased the cost of repayment.
The trust consists of more than 200 loans. Most are linked to US offices, but some are also linked to UK property.
Many offices are now empty due to the rise in working from home. This has also accelerated the decline in value of previously valuable sites.
Mr Block stated: “There is a high risk of a liquidation crisis.” It is not the story of bad people doing bad things. They are just unlucky.
“Blackstone might modify the loans, but there are so many loans that are due to expire next year. Don’t ignore them.
On Wednesday night, shares of the trust listed in New York fell by more than 6pc.
Blackstone retorted that Block wanted to drive shares down. Short sellers buy shares, then borrow them and sell them with the hopes of buying them at a cheaper price. They pocket the difference.
Blackstone’s spokesperson said that they believe the report was created with the intention of harming BXMT’s stock price for the benefit of the short seller.
“We will answer in more detail, but the steps we’ve taken on both sides, including proactive asset-management, a cautious liquidity posture, as well as a patient approach towards new investments, have left us well-positioned to navigate this climate.”
Last year, after a large number of investors redeemed their shares, Blackstone Real Estate Income Trust was one of the trusts that the private equity firm had to limit.
Mr Block revealed the short position during the Sohn Investment Conference. This is an event where top money managers present their best investment ideas.
He said that the trust was likely to cut its dividend by half next year, and that a large number of borrowers will be unable refinance their loans or repay the trust.
The trust’s loan book is 64 percent US-based.
He said that the trust’s loan book could suffer losses up to $4.5billion and its shares at risk of total extinction.