Blackstone Group is preparing a circa £300 million UK commercial mortgage-backed securities deal secured against a portfolio of logistics assets, said two sources familiar with the situation.
It would be the first European CMBS since the market seized up in May 2022 due to economic uncertainty and rising inflation caused by Russia’s war in Ukraine.
The US private equity firm is arranging the deal itself, an agency deal, with Citi as the seller and arranger and Standard Chartered Bank as arranger and joint lead managers.
A Blackstone spokesperson declined to comment on the CMBS but said: “Logistics is our highest conviction theme and has represented over 80% of our investments in Europe and the UK this year due to continued strong performance, including 45% releasing spreads in our UK logistics portfolio year-to-date.”
Releasing spreads indicate how much more rent is achieved on a new lease after a lease ends.
The CMBS, called Last Mile Logistics CMBS 2023-1 UK DAC, is backed by a pool of 37 properties with 161 unique tenants as of 30 April 2023, according to an SEC filing. The filing does not name Blackstone nor state the loan amount. It does name Deloitte, which verified property samples of a data file called Project Brompton AUP Data Tape_27 June2023 for the CMBS.
The CMBS is expected to be launched shortly and will be seen as an indicator for investor appetite, said the first source. Blackstone is talking to investors to gauge their interest. The European CMBS market came to a screeching halt in May 2022 when HSBC pulled the planned securitisation of a circa £380 million loan backed by student accommodation. By then, €1.5 billion worth of deals had been issued in 2022 compared with €7 billion in 2021.
The war in Ukraine caused economic uncertainty and pushed up prices. To combat inflation, central banks began raising interest rates. Deals started to dwindle as investors took to the sidelines and a repricing started to reflect the higher interest rates. Interest rates may rise further after the Bank of England raised base rates by 50 basis points to 5% on 22 June. The market is pricing in 6% by the end of the year. Some, such as Schroders, believe it could be 6.5% by the end of the year.
The CMBS, if it goes ahead, is seen as a sign that investors believe the sector has repriced sufficiently. Prime yields for logistics properties with a 20-years lease have moved out to 4.75% from 3% a year ago, according to a recent presentation by Knight Frank. Recent CoStar data suggests that average transaction yields have recently compressed across sectors. A total of £1.8 billion of logistics properties changed hands in the first quarter and £1.9 billion in the second, according to preliminary CoStar data.
The biggest deals were Blackstone’s £700 million purchase of Industrials REIT in the first quarter and its £480 million purchase of Trafford Park and Heywood Distribution Park in the North West from US investor Harbert Management Corporation in the second quarter, which was revealed by CoStar News. It also bought the Spears portfolio from BlackRock for £152 million, a 5.42% net initial yield, according to DTRE. The broker advised Abrdn on the sale of an Amazon centre in Wembley to clients of Deutsche Bank for £74 million, a 3.49% net initial yield.