Blackstone Group is closing a fund that specializes in commercial mortgage-backed securities, as the sector takes a beating from the coronavirus pandemic. The investment giant said it plans to liquidate the fund's assets to pay shareholders.

The fund in question, Blackstone Real Estate Income Master Fund, experienced an asset value drop from about $773M at the end of 2019 to $553M at the end of May 2020, according to Bloomberg, citing filings with the Securities and Exchange Commission.

Previously the fund had been a solid performer. The Blackstone Real Estate Income Master Fund, which had used leverage to bulk up on CMBS, provided a 5.52% average return during the five years before 2020.

Blackstone's retreat from the fund coincides with a troubled CMBS market. The delinquency rate of CMBS loans associated with hotels stood at 24.3% of the total in June, up from 19.13% in May, according to Trepp data. Retail-associated loans suffered delinquency at a rate of 18.07% in June, up from 10.14% in May.

Also in June, 20.5% of CMBS lodging loans were in special servicing, up from 16.2% in May, Trepp reports. Among retail CMBS loans, 14.3% were in special servicing in June, a rise from 9.3% the month before.

In late June, Blackstone Group ceased negotiations with the special servicer of a $273.7M CMBS loan associated with four urban-core, limited-service hotels. In a statement to Bisnow, Blackstone characterized it as a "small investment" that had troubles before the pandemic.

The rigidity of CMBS has helped exacerbate the crisis. Only 20% of hotel owners with conduit loans have found it possible to adjust their payments during the pandemic, compared to 91% of borrowers with bank loans, The Wall Street Journal reports, citing American Hotel and Lodging Association data.

It is possible that the Federal Reserve might step further in to keep CMBS from crashing completely. In April, the central bank specified that its Term Asset-Backed Securities Loan Facility could include legacy CMBS as eligible collateral. In June, more than 100 members of Congress asked the Fed to bail out the CMBS market, though they didn't specify a financial mechanism for doing so.