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Blackstone REIT, LBA Nab $944M CMBS Loan to Recap Huge Industrial Portfolio


Commercial real estate industry veterans recently discussed during a Commercial Observer event that the pandemic has created a story of the “haves” and “have nots.”

Two “haves” just recently sealed a massive commercial mortgage-backed securities (CMBS) financing to help fund a recapitalization of a bundle of 52 industrial properties, totaling more than 9.51 million square feet across two portfolios, Commercial Observer has learned.

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Blackstone (BX) Real Estate Income Trust (BREIT), a publicly traded real estate investment trust affiliated with behemoth global asset manager Blackstone, and its partner LBA Logistics, secured $944 million in non-recourse financing from Bank of America (BAC), Barclays (BCS) and Goldman Sachs (GS) to recap the two portfolios and facilitate BREIT’s nearly $1.6 billion acquisition of joint interests in the bundles from LBA, according to information from Moody’s Analytics.

LBA held on to a stake in each portfolio, and will continue to manage the assets, which are situated in last-mile areas in primary, gateway markets along the West Coast and in the Southwest.

The $944 million financing, which was originated on Jan. 21, included two first-lien mortgages accounting for the two portfolios — Fund JV ($555 million) and Fund V ($389 million). Both are secured by BREIT and LBA’s fee simple or leasehold interests in the 52 properties — Fund JV comprises 35 assets, while Fund V has 17. About $896.8 million of the financing will be securitized in the BX 2021-LBA single-asset, single-borrower CMBS transaction, as per information from Moody’s. 

BREIT made a $151.7 million equity investment to recapitalize Fund JV, and acquired a 41 percent interest in the portfolio for $918 million. LBA Logistics now holds a 20 percent interest, while a separate, third-party investor that went unnamed holds the remaining 39 percent stake. BREIT also picked up a roughly 85 percent interest in Fund V for about $644.4 million, with LBA retaining the remaining 15 percent, per Moody’s. 

The $555 million mortgage backed by Fund JV is a two-year, floating-rate and interest-only loan sporting five one-year extension options; it’s collateralized by the 35 properties, which span a combined 6.6 million square feet. The $389 million loan on Fund V features identical terms and is backed by 17 industrial assets, which comprise roughly 2.9 million square feet. 

BREIT and LBA also struck up an interest rate cate cap, which has a strike rate of 3.75 percent or lower, per Moody’s; once the fourth and fifth extension options are underway, the spreads will jump 25 basis points.

Built between 1967 and 2019, the 35 assets in the Fund JV portfolio were about 96 percent leased to more than 100 tenants as of the end of 2020, and Moody’s concluded that the “properties appear well-maintained based on our site visits and the third-party property condition reports,” which said that the portfolio needed no immediate repairs. LBA has doled out more than $14 million for capital improvements since acquiring the properties seven years ago. 

The largest tenant within the Fund JV portfolio represents just 6 percent of net rentable area (NRA), and its 10 largest tenants are housed in nearly 2.7 million square feet, or 44.1 percent of NRA. Seven assets, comprising nearly 11 percent of NRA, are located in Seattle, while 14 properties that make up almost 44 percent of its rentable area are located throughout California; it also includes properties in Nevada, Utah and Texas. 

The 17 properties within the Fund V portfolio were built between 1954 and 2020, and are also well-leased — 93.6 percent as of the end of last year — to more than 50 occupants. LBA has injected about $23 million into upgrading and renovating these 17 properties since acquiring them in 2013, with those in Fund JV. 

Fund V also sports a strong, diverse collection of tenants, the largest of which controls about 19 percent of its overall rentable area, while only two other tenants rent out more than 10 percent; its 10 largest make up about 1.9 million square feet, or represent just over 65 percent of its rentable space.

The properties are spread out across four states, with California hosting nearly half of them; the remaining assets are in Oregon, Arizona and Washington. 

Despite the strong tenancy, which includes a range of credit tenants, both portfolios face some rollover risk during the life of the financing, which includes the bevy of extension options. 

In Fund JV, leases on about 89.3 percent of rentable area and nearly 83 percent of base rent is set to expire prior to 2028, although the expirations are staggered, per Moody’s. “Rolls are greatest in 2021, 2022 and 2024, with 16.3 percent, 23.7 percent and 17.7 percent of the NRA [and] 16.5 percent, 20.2 percent and 13.9 percent of base rent expiring, respectively.”

Fund V faces the same reality, as leases making up 76.8 percent of NRA and 68 percent of base rent are in line to expire by 2028. “Rolls are greatest in 2021, 2023 and 2026, with 21.5 percent, 12.4 percent and 14.1 percent of the NRA [and] 11 percent, 13.4 percent and 10.9 percent of base rent expiring, respectively,” per analysis from Moody’s.