The end of the era of free money has had a catastrophic impact on financial markets, with commercial real estate set to be the next victim.

One of Europe’s most indebted property tycoons, Ilija Batljan, has been hit particularly hard. Over the past decade, Batljan has built a Nordic real-estate empire through low-cost loans. His company, SBB, specializes in social infrastructure and has purchased health clinics, schools, and even police stations, leasing them back to local governments. As a result, individual investors were eager to invest in SBB’s stocks, which soared. Ernst & Young, the company’s auditor, hailed Batljan as Sweden’s “entrepreneur of the year.”

However, soaring interest rates have severely impacted SBB, making it among the hardest hit in Europe’s increasingly fragile property markets. Prices in the region have plummeted by a fifth over the past year. Sweden’s main financial regulator warned of a “time of reckoning” for commercial property. SBB’s shares have plunged by around 80% from a late 2021 peak, wiping out $15 billion of market value. Short sellers have targeted SBB, while S&P Global Ratings has warned of a possible downgrade, a move that could add more costs and complicate plans to pay off debts.

Batljan’s personal finances are also under pressure. He used his own stockholdings for significant personal borrowing. To raise cash, SBB sold a stake of a portfolio of schools and preschools to private-equity giant Brookfield Asset Management.

Investors are increasingly concerned about risks in the global property market, particularly after Silicon Valley Bank’s collapse. Banks, private-equity firms, and ordinary investors have significant exposure to real-estate lending. Many are worried that the real-estate market could inflict broader economic damage, given the pandemic-induced changes in commuting and retail patterns.

The boom-bust cycle in Sweden was magnified. The country’s finance sector weathered the 2008 financial crisis, thanks to caution adopted after an early 1990s real-estate bust. “SBB is sort of the perfect example of what happened in the Swedish market,” said Edoardo Gili, an analyst at the real estate-focused Green Street Advisors. SBB has the second-highest level of debt of all the companies Green Street covers, equal to roughly 66% of the value of its assets. SBB argues that it calculates its debt levels differently, at roughly 49% of its portfolio value, a measure that doesn’t count as a form of SBB’s so-called hybrid bonds as debt.

Batljan, 55, said SBB was well-positioned given its low vacancy rate and long-term leases with governments. He said the company has quickly pivoted to strengthening its finances and has few debt maturities this year. He added that his personal borrowing was conservative, with plenty of cushion. “It’s not the strongest of the species that survive,” he said, paraphrasing Charles Darwin. “It’s the one that is the most adaptable to change.”

Born in Montenegro, Batljan emigrated to Sweden as war raged in his home region in the early 1990s. He earned a Ph.D. in social work and later took up a career in politics. After leaving.

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