Blackstone Group has sold a majority stake in an 11-property multifamily portfolio in New York as the world’s largest commercial real estate owner focuses more on residential rental investments across growing Sun Belt markets and other property types such as data centers.
The move comes as New York-based Blackstone, like most landlords, also has been dealing with looming loan payments in a challenging economic environment with higher interest rates that raise borrowing costs, especially for floating-rate debt.
“This legacy urban apartment investment faced challenges because significant capital was required to bring the 60+-year-old product up to our standards and is not representative of the strength we’re seeing in our broader rental housing portfolio, which is nearly 40 years newer on average and highly concentrated in the Sun Belt,” a spokesperson for Blackstone told CoStar News in an email.
The deal comes as a $270 million floating-rate commercial mortgage-backed securities loan on the nearly 640-unit portfolio was set to mature this month. Blackstone had an option to extend the loan for two more one-year periods. The loan transferred to special servicing in January for imminent default, according to CMBS documents.
An affiliate of Atlas Capital Group, a New York and Los Angeles-based investment firm, was the buyer for $142.4 million, according to New York public sale records.
Atlas acquired a 51% interest, according to a report by online real estate publication PincusCo. With a price of $142.4 million, a 100% stake would come out to $279.2 million. The portfolio was appraised in March at $355 million, according to CMBS documents.
Blackstone originally acquired the portfolio as part of a larger $690 million transaction in 2015, CoStar data shows. Through its Blackstone Real Estate Partners VIII fund, the firm bought a nearly 1,000-unit portfolio in partnership with Fairstead, a housing developer.
The portfolio is made up of 11 mid-rise rental properties in and around the Chelsea, Upper East Side and other neighborhoods. The largest of the properties is The Grove, a 200-unit complex at 250 W. 19th St.
Other properties are 31 E. 31st.; 344 E. 63rd St.; 451 E. 83rd St.; 309 W. 30th St.; 434 W. 19th St.; 337 W. 30th St.; 345 W. 30th St.; 425 E. 84th St.; 445 E. 83rd St.; and 162 E. 61st St., according to CoStar data.
The properties required higher-than-expected capital spending while floating-rate debt drove up borrowing costs, CoStar News reported at the time the loan went into special servicing. A person familiar with the situation then said Blackstone didn't believe it was the best use of capital to fund properties struggling with cash flow.
More Time for Refinancing
Following the sale of the majority stake to Atlas, Blackstone extended the existing CMBS loan maturity until August 2024, giving the new ownership additional time to refinance the loan, according to CoStar data. The extension will move the loan out of special servicing.
“We are pleased to have reached an agreement with our lenders that is in the best interests of all parties involved,” the Blackstone spokesperson said.
In addition to selling control and extending the senior loan, Blackstone also repaid $93.3 million in mezzanine debt on the properties, CoStar data shows.
Blackstone in July reported lower second-quarter distributable earnings, a closely watched profit metric, after real estate, traditionally an outperformer, turned out to be the worst-performing segment. After the real estate segment generated $5.5 billion in asset sales last quarter that was less than a third of the year-earlier volume, Blackstone Real Estate Income Trust this month said it's selling a stake in the Bellagio Las Vegas resort and casino for $950 million to Realty Income Corp.
However, Blackstone President and Chief Operating Officer Jonathan Gray said the firm, which crossed $1 trillion in assets under management last quarter, had less than 1% of leveraged loan default rates in its portfolio. Gray said global logistics, digital infrastructure and energy transition, life sciences, student housing, lending and credit remain among areas where Blackstone sees big investment opportunities.
While Blackstone's rental housing may be concentrated in the Sun Belt, it still has major ownership in some high-profile Manhattan residential properties when New York's average market rent per unit has reached what CoStar data shows as record highs.
For instance, Blackstone owns the 899-unit Frank Gehry-designed luxury residential tower at 8 Spruce St. in lower Manhattan after a $930 million purchase in June 2022, CoStar data shows.
It also co-owns the 11,254-unit Stuyvesant Town complex at 409 E. 14th St. with Canadian developer Ivanhoé Cambridge. The firms bought the property for $5.46 billion in 2015.