The Real-Estate Market Caught in a Tangled Web of Ownership and Debt
Swedish property companies have some $41 billion of bond debt coming due in the next few years
PremiumOne of the world’s most overstretched real-estate markets has a knotty problem. Many of its top property tycoons own stakes in rival companies—and when one firm wobbles, others can feel the pain.
The market is Sweden, which has become an emblem of the strains caused when interest rates rise. Major commercial landlord SBB is buckling under a roughly $8 billion debt load, while billions of dollars have been wiped off the market value of its competitors.
Adding to concerns is an unusually tangled web of shareholdings, whereby a few dozen industry leaders, wealthy families and corporations own large chunks of many property companies. In many cases, these holdings were funded with debt.
Thirteen chief executives and families own sizable stakes in at least 34 property companies, according to researchers at Colliers. These companies in turn own stakes in at least 32 other real-estate businesses. The property-services firm’s arrow-filled breakdown of all these linkages has drawn the attention of short sellers.
“This interconnectedness is definitely a negative thing in turbulent times like this," said Henrik Braconier, chief economist at the Finansinspektionen, or financial supervisory agency.
The agency, Sweden’s main financial regulator, has warned for years about the fragility of the property sector. While there are bigger risks right now than interwoven ownership, Braconier said, it adds to the complexity and uncertainty for investors.
As far back as 2021, Moody’s Investors Service cautioned that “Swedish real-estate companies are closely interlinked" and that this could magnify a series of risks in a downturn.
Cross-ownership between publicly traded companies was once common in Sweden, and has largely faded amid a drive for improved corporate governance. But real estate has “gone the other way," said Ulf Larsson Olaison, an assistant professor at Jönköping International Business School who studies corporate governance.
Some cross-holdings evolved over time, with firms splitting or merging. Others occurred because bosses want to spread their bets among other companies they understand, said Michael Johansson, an analyst at Arctic Securities who covers the sector.
Low interest rates played a role, by reducing borrowing costs and giving buyers extra financial firepower. Companies hunting for high-yield investments plowed funds into competitors’ shares when they couldn’t find enough properties to purchase, analysts said.
Property companies in Sweden have about $41 billion in bond debt set to mature between 2024 and 2027, according to Finansinspektionen estimates, much of it borrowed at ultracheap rates well below what banks or the bond market could offer today.
A key concern is that the web of ownership could lead to a cascade of falling prices given that ownership in the market is so concentrated. Debt, used by both companies and CEOs to buy competitors’ shares, would magnify any problems.
For instance, a selloff in one stock could trigger margin calls, potentially forcing one or more major investors to unload large stakes in other companies. Those stocks could in turn come under pressure, especially if there are few buyers for those shares—something that is more likely if many big investors are facing similar troubles.
Other worries include the potential for conflicts of interest, and the added complexity that makes companies harder for analysts and investors to understand.
The cooling of Sweden’s commercial property market has already slashed market values and felled two high-profile chief executives. Shares in Balder, the country’s largest commercial-property company, are worth roughly one-third of their 2021 peak value.
On June 2, SBB said founder Ilija Batljan would step down as CEO, adding that he and the board agreed “new leadership is best." A month earlier, S&P Global Ratings had cut SBB to “junk," pushing the company to postpone its dividend as it sought to preserve cash.
SBB grew rapidly while interest rates were low, as Batljan took it from virtually nothing to owning more than 60 million square feet of apartments and public-sector properties such as senior care homes, plus stakes in at least eight other property companies.
Now, Batljan’s successor, Leiv Synnes, is looking for buyers of all or part of the company. SBB’s market capitalization has fallen by more than $15 billion from a late 2021 peak and its stock is down more than 90%. Last month, SBB unloaded its stake in one rival, Nordic housing developer JM, and analysts expect more sales.
The turmoil has weighed on Batljan’s personal finances. The politician-turned-property tycoon had taken out bond debt tied to his holdings in SBB, which relied on the SBB dividend. Through his holding company, Batljan had already sold some shares in other companies, including his modest-sized stake in rival Castellum in April, according to data firm Modular Finance’s Holdings database.
In late May, he suspended interest payments on some debt, though analysts say he may need to sell other holdings. He also owns 19% of warehouse landlord Logistea, a business also part-owned by former Castellum CEO Rutger Arnhult.
Arnhult was CEO of Castellum, a large Swedish office owner, from January through December 2022. Late last year, Castellum said Arnhult’s investment firm, M2 Asset Management, had been forced to sell most of its shares to meet unspecified “financial claims" in “extremely urgent, unforeseeable and compelling" circumstances.
Arnhult came under pressure not just from the fall in Castellum’s shares—which more than halved in a year—but from similar drops at two other property companies that he part-owned, analysts at Green Street Advisors said in a report.
Arnhult sold his 12.2% Castellum stake to property company Akelius for the equivalent of more than $400 million.
Meanwhile, the new SBB CEO, Synnes, was a top executive at Akelius and a board member at Castellum until this month. His cross-ownership is less complex than his predecessors: An SBB spokeswoman said he gave up his board seats, and added that he owns no shares in Akelius and 1,000 shares of Castellum.
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