Deutsche Bank Provides $415M CMBS Refi for Blackstone West Coast Resi Portfolio
Of the deal's $415 million balance, 43.2 percent of it is concentrated in and around Seattle.
Blackstone has nabbed $415 million in commercial mortgage-backed securities (CMBS) debt from Deutsche Bank to refinance a portfolio of 10 multifamily properties located throughout the West Coast and Arizona, according to rating agency documents.
The full-term interest-only, floating-rate CMBS loan has an initial term of two years and includes three one-year extension options. This financing retired roughly $305 million in existing debt, returned nearly $103 million of equity to Blackstone and paid $7.2 million in closing costs.
The debt is being securitized in the Deutsche-led COMM 2019-WCM single-asset, single-borrower CMBS deal, which is expected to close on Oct. 30, according to information from Trepp.
Blackstone entered into a rate cap agreement—with a rate strike price of 3.75 percent—to mitigate any potential increases in LIBOR. Morningstar calculated a maximum interest rate of nearly 5.4 percent—the strike price plus a 1.59 percent spread. The deal included transition provisions around the implementation of an alternate rate index should the market phase out the LIBOR index in the coming years, according to information from ratings agency reports.
The 10 properties — which house almost 3,000 units — were built between 1983 and 2006. As of August 2019, the 2,297 units in the portfolio were just over 92 percent occupied.
The average monthly rent for studios in the portfolio is $1,631; it’s $1,382 for one-bedroom units; $1,524 for two-bedroom units; $1,970 for three-bedroom units; and $2,802 for the four, four-bedroom apartments, according to rating agency reports.
Four properties are located in the Seattle metro area—making up 43.2 percent of the deal’s securitized balance; four are located in the Los Angeles, San Francisco and San Diego, Calif. markets, making up 41.7 percent of the overall deal; and there’s one each in Tempe and Mesa, Ariz., which are submarkets of the greater Phoenix metro area.
Blackstone bought the 10 properties for almost $430 million between December 2015 and November 2016, and it has since deployed $30.4 million for renovations covering just over 43 percent of the portfolio’s units, according to Morningstar. Of the money used for renovations, $12.3 million covered “deferred maintenance and asset preservation requirements,” $14.6 million funded general renovations to the units and $3.6 million was for “replacement of capital items,” according to ratings agency reports. The renovations included the additions of new flooring as well as stainless steel appliances and new countertops, among other improvements.
Morningstar estimated that for the previous two and a half years ending on June 30, 2019, the portfolio’s effective gross income climbed 10.4 percent to $40.5 million. Over that time, Blackstone was able to lower operating expenses to 38.2 percent of revenue, from just under 64 percent, and it saw a 13.4 percent increase in the portfolio’s net operating income to $27.1 million, from $23.9 million, according to Morningstar.
In September this year, Cushman & Wakefield appraised the portfolio at a current market value of $573.7 million.
Greystar, Pinnacle, Davlyn Investments and Bridge Property Management each split the management of the 10 properties. Every month, Blackstone will pay each manager—except for Pinnacle—a fee of 3 percent of gross income generated over the period; Pinnacle holds a management fee of 2.25 percent, according to loan agreement terms cited by Morningstar.