Blackstone Group is mulling another logistics commercial mortgage-backed securities deal in Europe before the end of this year, after successfully placing a £263 million CMBS last week, CoStar News understands.
With the launch of Last Mile Logistics CMBS 2023-1 UK, the US private equity group reopened the CMBS market, which had been frozen since May 2022 due to macroeconomic uncertainty and rising interest rates caused by Russia’s invasion of Ukraine, as reported.
Citi had backed the £263 million CMBS with a £290 million loan. The US investment bank retained the difference. Blackstone must make quarterly interest payments based on the Sterling Overnight Index Average (Sonia) interbank lending rate benchmark rate plus a margin equal to the weighted average margin of the notes on the preceding note payment date, 3.23% at closing, subject to a cap of 4.67%, according to the presale document from rating agent KBRA.
By comparison, Bank of America charged a margin of 1.75% over Sonia in 2021 when it provided £848.4 million in senior debt, of which £701.4 million was securitised in Taurus UK DAC 2021-4, to refinance two industrial and logistics portfolios owned by Blackstone's Mileway platform. In November, Bank of America and Standard Chartered charged 250 to 275 basis points over Sonia for a £300 million-plus loan secured against a portfolio of UK logistics properties owned by Blackstone, as reported. That loan was not securitised as the market was shut.
The CMBS is backed by 37 industrial and logistics properties. They were built between 1970 and 2022 and are on average 32 years old, according to the presale document. Blackstone acquired the properties between December 2021 and April 2023. The biggest property, by value, in the portfolio is Stratus Park Milton Keynes followed by Bracknell Sterling Centre and Centra Park in Welwyn Garden City. Yields for logistics properties have started to compress during the first half of the year thanks to strong demand from tenants, CoStar research shows.
The main two differences between this deal and CMBS deals done before May 2022 are the higher pricing and lower leverage. The loan is interest-only over its five-year term.
The portfolio backing the CMBS covers 3.3 million square feet and is valued at £531.6 million and produces £24.3 million in annual net operating income, according to KBRA’s presale document. The loan-to-value of 54.5% is lower than the average of 61.6% of 12 comparable transactions between April 2021 and March 2022, according to KBRA. The debt from Bank of America and Standard Chartered reflected circa 60% loan-to-value.
The £145 million class A notes, rated AAA by S&P and KBRA, reflected a loan to value of 34% and priced at 235 basis points over Sonia. The Class A notes in Taurus UK DAC 2021-4 priced at 95 basis points over Sonia.
The £39 million class D notes, rated BBB and BBB- by S&P and KBRA respectively, priced at 580 basis points over Sonia. The D notes in Taurus UK DAC 2021-4 priced at 210 basis points over Sonia.
The last logistics CMBS launched in March 2022, with Bank of America and Goldman Sachs securitising €500 million of debt for Blackstone Group. Cassia 2022-1 SRL CMBS was backed by 63 logistics properties across Italy valued at around €740.7 million. The class A notes priced at 2.5% over the Euribor interbank lending rate, the B notes priced at 3.5% and the C notes at 5%. But that was Italian real estate, which tends to price higher than UK real estate.