New Lending by Mortgage REITs Has Dried Up

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Some of the biggest names in commercial real-estate lending have all but turned off the spigot. Blackstone Mortgage Trust and KKR Real Estate Finance Trust, two of the biggest mortgage real-estate investment trusts, have halted loans to any new borrowers. While these firms continued to provide financing related to existing loans, they didn’t originate any new loans during the first half of this year, according to the companies.

Starwood Property Trust, another lender in the sector, has greatly decreased its appetite for new lending in recent quarters, securities filings show. Mortgage REITs, which lend to property owners instead of buying and developing real estate like equity-oriented REITs, typically originate an average of about $10 billion in loans a quarter, according to Jade Rahmani, an analyst at Keefe, Bruyette & Woods. But lately “hardly anyone has made new loans," he said.

Mortgage REITs are pulling back to protect their balance sheets during one of the most troubled commercial real-estate markets in decades. Default rates are rising for all lenders because higher interest rates are making it tougher for many borrowers to refinance and many properties, especially office buildings, are suffering higher vacancy rates. Their shutdown is a clear sign of how much lenders are tightening credit.

Total commercial and multifamily mortgage lending is expected to fall to $504 billion this year, a 38% decline from 2022, according to the Mortgage Bankers Association. Other big lenders, including small and regional banks and issuers of commercial mortgage-backed securities, also have greatly curtailed new loans. That is leaving many commercial property owners in a bind to refinance debt as it comes due, increasing the