Blackstone has big problems... lots of them.

Blackstone's risk is not just that it's everywhere. It has also been lending in risky areas that regulated banks have abandoned. It's the kind of lending used to bring down banks.

Blackstone has heavy exposure to real estate and private equity. It has a ton of leverage in those areas (often given by other Blackstone entities).

And now, we're starting to see headlines pop up about Blackstone's business running into trouble.

First, the Blackstone Real Estate Income Trust ("BREIT") began limiting investor withdrawals a few months ago. Though it didn't guarantee anything was wrong, the withdrawals still dinged Blackstone's reputation.

Now, Blackstone funds are facing real default risk. So far this year, it has defaulted on more than $1 billion in its commercial mortgage-backed securities ("CMBS").

In February, it defaulted on a $270 million CMBS on several Manhattan apartment buildings. Then, it defaulted earlier this month on a more than $500 million CMBS tied to Finnish offices and stores... and on a $325 million Las Vegas property.

Its real estate portfolio has been facing challenges ever since the pandemic. The war in Ukraine is also causing uncertainty.

However, this is just the beginning of the issue...

And the market is taking notice.

Since the beginning of February, Blackstone is down more than 13%. This fall has primarily occurred as a result of investor fears from the failure of Silvergate Capital (SI) and SVB Financial (SIVB) subsidiary Silicon Valley Bank.

Take a look...

Once investors start to realize that Blackstone has more issues than these regulated banks, it could fall even further.

We'll keep digging into the full web of Blackstone's businesses over the next few weeks. It's at the epicenter of the issues with mark to market and the broader shadow-bank problems we talked about last Tuesday.

Rising interest rates have hurt the performances of many assets in Blackstone's private equity, real estate, and private lending activities. Blackstone hasn't had to confront those losses... yet. So it has been able to dodge investor attention for much of the past year and a half.

But it can't hide forever. As the market starts to catch on, it will have to reprice a maze of public and private investments. That means further trouble for Blackstone's fees and its stock, and for the investors in its fund.

Joel Litman