Blackstone real estate suffers $600 million in losses from sales of senior housing portfolio

In November, the Wall Street Journal reported that Blackstone was selling off a portfolio of about 90 senior housing properties, incurring over $600 million in losses. In its article “Blackstone is Offloading a Flopped $1.8 Billion Investment in Senior Housing,” the Journal wrote that Blackstone’s senior housing acquisitions were a “major investment gone wrong,” that was “shaping up to be one of the New York firm’s worst investments in recent years.”

According to the article, Blackstone has been selling off its portfolio of about 9,000 senior housing units, one property at a time. Blackstone has already sold 70 of the approximately 90 senior housing properties and is in talks to sell the remaining facilities. The Journal noted that Blackstone had sold senior housing properties in the Denver, Chicago, and South Florida metro areas for 70% less than the company had paid for them.

The Journal wrote that the “math behind Blackstone’s turnaround plan crumbled,” and that much of the $1.2 billion in debt the firm had borrowed to finance the acquisitions carried a floating interest rate. The rise in interest rates drove up loan payments and “squeezed cash flow further.” Earlier this year, the loans on about two dozen of the properties went into special servicing, “a sign that the loans were in distress or at risk of default.” The paper identified several properties that sold for less than the loans that Blackstone had taken out on them.

These senior housing properties required different services than other properties in Blackstone’s portfolio. Regulators cited more than a dozen Blackstone senior housing properties for deficiencies in resident care. The Centers for Medicare and Medicaid Services gave a Blackstone community in South Carolina a one-star rating, out of a possible five. The Wall Street Journal article noted that one of the factors contributing to the rating was that the home incorrectly prescribed antipsychotic medication to a resident, which the federal report stated, “was likely to cause serious injury, serious harm, serious impairment, or death.” Blackstone sold the property for 60% below the purchase price.

State regulators found numerous violations, including inadequate resident care, unsanitary conditions, and administrative failures at one of the Blackstone properties in Aventura, Florida. The property sold for 75% less than the $48.8 million Blackstone paid for it.

Blackstone had acquired 64 of the senior housing properties in 2016 for $1.1 billion through its Real Estate Partners VIII fund, which a number of public employee pension funds invested in, including the Arizona Retirement System ($100 million), the San Francisco Employees Retirement System ($150 million), North Carolina Retirement System ($200 million), and the Pennsylvania Public School Employees Retirement System ($300 million). Blackstone purchased 26 of the properties for $745 million in 2017.