Commercial lender Blackstone Mortgage Trust entered 2025 with record-high cash reserves as loan payoffs surged in recent months. Now it's spending some of that money on retail properties.
The firm is focusing on investing in net-lease properties where tenants pay for utilities, insurance, and some other costs as well as rent, joining other institutional and private equity firms in buying these traditionally low-risk assets favorable to owners. The initial focus will be on real estate linked to essential retail — businesses that sell products considered necessary for daily living, such as grocery and drug stores, the company said.
The business owned by New York-based property investing giant Blackstone, is also expanding its lending pipeline, at least outside the United States. The moves come as Blackstone Mortgage expects interest rates to remain elevated after two years of reduced loan volume. That has the real estate investment trust looking to expand its sources of income, it said Wednesday on a fourth-quarter and year-end earnings call.
Other lending firms that invest in net-leased properties include Ares Commercial Real Estate, CIM Real Estate Finance, Fortress Investment Group, JPMorgan Real Estate Income Trust, JLL Income Property Trust and Ladder Capital. Net-lease investments are in some ways similar to loans because they are longer-term, as well as based on tenants’ credit ratings and their ability to pay rent.
“As we look ahead, we are leveraging the same Blackstone platform advantages and entrepreneurial DNA to look across the real estate credit universe and identify the best-suited incremental, strategic opportunities for our business,” Katie Keenan, CEO of Blackstone Mortgage, said on the call. “With interest rates remaining elevated, a positive outlook for the U.S., consumer and essential needs-based retail showing resilient performance, we see a compelling setup today to build a credit-oriented, diversified net lease strategy.”
Owners of properties net leased to single tenants not only benefit from tenants paying some operating costs of the building, but from built-in annual rent increases and the potential for value appreciation. Keenan said those qualities complement the REIT’s core floating-rate lending business.
“We believe we can acquire assets at a significant discount to replacement costs with 10- to 20-year leases and strong" earnings before interest, taxes, depreciation and amortization coverage generated by established businesses,” she said. “Over time, we expect to curate a diversified portfolio.”
Deals underway
Keenan added that the new strategy will take time to ramp up, but that Blackstone Mortgage completed its first two net-lease transactions this week. Blackstone Mortgage declined to comment beyond the information discussed on the earnings call.
In its annual report filed with the Securities and Exchange Commission, the REIT disclosed it is undertaking the net-lease strategy in a joint venture with another, unspecified Blackstone-advised investment fund. Blackstone Mortgage initially contributed $7.2 million to the joint venture.
“While this strategy will take time to ramp, it is meaningfully scalable with a total addressable market in the trillions,” Keenan said on the call. “Further, it brings the benefit of adding another attractive outlet for capital deployment, further expanding the scope of the [Blackstone Mortgage’s] new investment pipeline and positioning the company to capture the best relative value across real estate credit markets.”
On its core business side, Blackstone Mortgage reported repayment activity of $5.2 billion in 2024, 36% more than in 2023. The increase was accelerated by more institutional capital chasing high-quality assets, the firm said. Those repayments include $2 billion in payoffs on 10 different office loans. Another $1.5 billion in office loans were repaid already this year.
Even with the office loan payoffs, Keenan said, the firm would continue to look to decrease the share that office loans make up in its portfolio.
Last year, Blackstone Mortgage originated just $400 million new loans, largely concentrated in multifamily and industrial sectors. That was up from less than $100 million in 2023, but well down from $7.1 billion in 2022.
Looking ahead to this year, however, Blackstone Mortgage’s pipeline of new originations has already grown to more than $2 billion, with some of the amount already having been originated. However, 60% of Blackstone’s origination pipeline is outside the United States, where transaction pricing is more attractive, Keenan said.