New York-based private equity and real estate giant, The Blackstone Group, has acquired approximately $600 million of mezzanine debt behind a large US portfolio of industrial properties, according to a report by Bloomberg.
The portfolio, called CalWest, was once the second largest US industrial sale when Chicago-based private equity real estate firm Walton Street Capital bought it for $2.75 billion from the California Public Employees’ Retirement System and RREEF, the alternative investments division of Deutsche Bank, in April 2007.
However, the global financial crisis saw industrial real estate values decline as much as 45 percent according to figures from Moody’s Investors Service. While values have rebounded, the portfolio is believed to be valued at close to $2.2 billion today.
According to Bloomberg’s sources, the portfolio’s senior debt, which matures in 2012, may be challenging to refinance. That could strengthen Blackstone’s chances of taking a controlling position in the portfolio, which was 83 percent leased as of December.
The deal marks the continuation of efforts by Blackstone to increase its exposure to industrial real estate while valuations and rental levels are still on the road to recovery. Last year, the firm purchased two large industrial portfolios. One was from Denver-based ProLogis and the other from funds managed by ProLogis and Eaton Vance Group.
Blackstone has been particularly acquisitive in 2011 in the debt space, operating both a 'loan to own' strategy via its main Blackstone Real Estate Partners fund series and a 'loan to loan' strategy through its Blackstone Special Situation Fund series, which is currently two funds in, the latter of which closed on $1.5 billion at the end of last year. The investment in the mezzanine debt behind the CalWest portfolio, PERE understands, was made by the former.
Only yesterday, it was an revealed that the firm and joint venture partner Square Mile Capital Management had closed on the purchase of $385 million of hotel loans held by US banking regulator, the Federal Deposit Insurance Corporation. While it is currently unknown what sort of discount Blackstone achieved for CalWest, in that deal the firm paid around 80 cents on the dollar for the loans behind the 45-asset strong portfolio.