Blackstone Mortgage Trust’s newest collateralized loan obligation deal is primarily backed by hospitality, apartment and industrial buildings, but one asset class is missing from the mix: office.

The public REIT is gearing up to sell a $1B CLO, its first since 2021, Bloomberg reported, stating that details could change as the deal is in its early stages.

The CLO is backed by 90 buildings, most of which fall in line with BXMT's movement into sectors like multifamily, logistics and hospitality and away from the office sector.

BXMT has used CLOs in the past to fund loans made to office properties. Four of BXMT's previous deals were mostly backed by offices, according to Bloomberg.

In the years since BXMT's last CLO sale, the office sector has undergone a nosedive in demand due to the pandemic. On average, there are 54% fewer people in the office compared to prepandemic.

On the other hand, more and more companies are enacting RTO policies — 80% of CEOs said they plan to do so in 2025. This, combined with a flight-to-quality trend, is helping boost the sector.

At the same time, BXMT is reducing its office exposure. Its borrowers have repaid $1.5B in office loans this year and $3B since the beginning of 2022, executives said on its fourth-quarter earnings call.

"We'll certainly see less office in the portfolio as we move forward," BXMT CEO Katharine Keenan said during the earnings call last month.

Concerns over its office portfolio led Moody’s to cut the REIT’s corporate credit rating from B1 to Ba3 in November. That came after BXMT reported a net loss of $241.3M through the first nine months of 2024 driven by a $519.7M increase in the company's expected credit loss reserve.

BXMT had experienced an increase in problem loans driven by office debt — a third of its total loan volume. Twelve office loans were noted as being at an elevated risk level with an overall net book value of $2.2B. This made up 30% of its total office loans as of November.

CLOs for commercial real estate are in a difficult position, as interest rate hikes led to a huge jump in delinquencies and properties losing value. Though the market is coming out of the haze, lenders are jumping back into CRE to capitalize on optimistic investors and low premiums.

Blackstone has been busy lately. The firm announced last week a commercial property debt fund closing with $8B raised. Blackstone Real Estate Debt Strategies V will capitalize on capital dislocations in the market and target North American, European and Australian assets.