The end of the era of free money has spread financial damage far and wide, with many worried commercial real estate will be the next shoe to drop.

Just ask

Ilija Batljan
—one of Europe’s most indebted property tycoons.

In under a decade, the former small-town mayor built a Nordic real-estate empire on a wave of low-cost loans. His company, known as SBB, specialized in so-called “social infrastructure.” As chief executive, he has bought health clinics, schools and even police stations and leased them back to local governments. Swarms of individual investors rushed into SBB stock.

Ernst & Young, the company’s auditor, feted Mr. Batljan as Sweden’s “entrepreneur of the year” at a glitzy gala in Stockholm’s city hall.

Soaring interest rates have clenched SBB, making it among the hardest hit in Europe’s increasingly fragile property markets. Prices in the region have plunged by a fifth over the past year. Sweden’s main financial regulator warned of a “time of reckoning” for commercial property.

The company’s shares are down 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. Mr. Batljan’s finances are under pressure too. He used his own stockholdings for hefty personal borrowing.

To raise cash, last month SBB tapped part of a $890 million lifeline from private-equity giant
Asset Management, selling off a stake of a portfolio of schools and preschools.

An independent middle school owned by SBB in Solna, Sweden.

After Silicon Valley Bank collapsed in the face of rising rates, investors homed in on risks in the global property market. Banks on both sides of the Atlantic have significant exposure to real-estate lending. So do private-equity firms and ordinary investors, who hunted for yield in the decade when interest rates fell to zero or in Europe’s case, even lower.

Many worry that the real-estate market—still grappling with pandemic-induced changes in commuting and retail patterns—could inflict broader economic damage as leases and loans come due.

The boom-bust cycle was magnified in Sweden. The finance sector there glided through 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, Mr. Gili said, equal to roughly 66% of the value of its assets. SBB says it calculates its debt levels differently, at roughly 49% of its portfolio value, a measure that doesn’t count a form of SBB’s so-called hybrid bonds as debt. 

Mr. 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.  His personal borrowing was conservative, with plenty of cushion, he added.


“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, Mr. 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. Considered a rising star in the Swedish Social Democratic Party, he left to work at a real-estate company, where he was later pushed out, he said.

In 2016, he founded SBB, whose official name is
Samhällsbyggnadsbolaget i Norden
AB, and listed publicly through a reverse merger with a company focused on telecom software and online gambling.

Trading socialism for neoliberalism, Mr. Batljan eschewed skyscrapers for assets at the heart of local communities. Wielding a Rolodex of political contacts, he struck deals to buy  city-owned buildings, renting them back to the municipalities at healthy rents. 

SBB’s portfolio grew to include elder-care homes, more than 10,000 regulated apartment units, a cultural center in a small town on the edge of the Arctic Circle and more than 275 preschools in Norway.

By the end of 2021, SBB had nearly 60 million square feet of space, the equivalent of 20 Empire State Buildings. A jury sponsored by Ernst & Young, in bestowing its prize for his accomplishments, dubbed him “Sweden’s real-estate king” with “ambition to become Europe’s largest real-estate company.” 

An EY spokeswoman said the award was independent of its audit business and decided by an external independent panel.

Mr. Batljan, comfortable in front of cameras, added to popular appeal. He made frequent cameos on television, boasting of the company’s accomplishments. He bragged about its growth on Twitter—and attacked the company’s critics.

SBB’s stock soared, increasing by more than 13 times from 2017 to when it peaked in late 2021 with a market value of more than $18 billion. It became one of the most owned stocks in all of Sweden, with over 260,000 shareholders—more than Stockholm-based fast fashion retailer
H&M Hennes & Mauritz
AB, according to financial-data firm Modular Finance.

“The insane growth made it really popular among Swedish investors,” said Danne Roos, 23, an accountant from Stockholm. 


Mr. Roos invested thousands of dollars two years ago, and bought more shares when prices fell. Overall, he is down over 44%. Still, he is bullish and thinks the company has weathered the storm. 

Mr. Batljan is a large shareholder, and he took on debt tied to his shares through a bond offering from a company named after himself: Ilija Batljan Invest AB. His interest payments on the bonds are supported partly by the dividends from SBB stock. 

SBB critics grew louder just as rising interest rates hit the company in 2022. Short sellers Viceroy Research last year released a report with an array of allegations, including a charge that SBB inflated the value it assigned its properties, then borrowed money based on those high valuations. 

View from the SBB office in Stockholm on Wednesday.

Mr. Batljan has criticized the short seller and denied the properties were overvalued. Independent appraisers handle valuations, SBB has said, and the company has been able to sell properties at or above the values it assigns.

In quarterly results calls, Mr. Batljan grew occasionally gruff: After a longtime
Goldman Sachs
property-industry analyst asked a question about cash flow, Mr. Batljan responded: “Have you worked with real estate?”

To pay down debt, Mr. Batljan spun off a portfolio of 8,000 apartments as a separate company, and unloaded office buildings, senior-care homes and warehouses. The company’s square footage fell by more than 8 million square feet in 2022.

SBB agreed late last year to sell 49% of its interest in a portfolio of preschools and other schools to Brookfield, which bought them through a fund devoted to infrastructure investments rather than through its large property arm.

Mr. Batljan has said the deal shows the company has plenty of ability to raise money through sales to well-known investors, even in a tough market. Mr. Batljan increased the dividend last quarter, a move he said was supported by cash raised from property sales. 

Some analysts worry SBB will give priority to paying dividends, which help support the stock price and Mr. Batljan’s personal bonds, over paying off debt.

This month, analysts at Nordea, who had once been bullish, sent clients a note encouraging them to sell SBB. They called the dividend unsustainable and worried about a debt downgrade amid the strains from higher rates.

Inflation in Sweden is among the highest in Europe at above 10%. The central bank raised its benchmark lending rate this week another half of a percentage point to 3.5%.

Mr. Batljan is hoping for a different move: He recently tweeted about a report that predicted long-term interest rates would fall back to 0.5%.

Write to Eliot Brown at [email protected]