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Blackstone, MSREI buy distressed Australian loans for A$620m

A partnership between The Blackstone Group and Morgan Stanley has purchased a portfolio of distressed property loans in Australia from Lloyd’s Banking Group at a significant discount. The assets, valued at A$1.8 billion, were acquired on behalf of the firms’ respective global opportunistic funds, BREP VII and G7.


The Blackstone Group and Morgan Stanley Real Estate Investing (MSREI) have agreed to acquire a portfolio of distressed property loans in Australia from Lloyd’s Banking Group for A$620 million (€482 million, $603 million).

Sources familiar with the matter told PERE that the two firms are acquiring the distressed portfolio, valued at A$1.8 billion, at around 34 cents on the dollar on behalf of their respective opportunistic funds, Blackstone Real Estate Partners (BREP) VII and Morgan Stanley Real Estate Fund (MSREF) VII Global. The acquisition is backed by financing from Deutsche Bank. 

Reuters is reporting that the Blackstone-MSREI consortium beat out such other bidders as The Macquarie Group, hedge funds Pacific Alliance and Elliot Associates and a consortium consisting of Goldman Sachs, Brookfield Asset Management and the Government of Singapore Investment Corporation.

Lloyds put the Australian portfolio up for sale in March as part of its strategy to offload its noncore assets. The bank had inherited the portfolio when it bought HBOS, including the Bank of Scotland and its international unit BOS International, in 2008. The sale of this portfolio follows Lloyds' move to sell A$1.7 billion in distressed property loans to Morgan Stanley and Goldman Sachs in November.

Nearly all the loans in the portfolio are in default. The bulk of the debt is on property in New South Wales, Victoria and Queensland, including residential and retail properties, offices, hotels, a marina and a retirement village. At press time, representatives from MSREI and Lloyd’s could not be reached for comment. Blackstone declined to comment.

BREP VII has raised $10 billion in equity commitments. Sources anticipate the global real estate opportunistic fund to close on a total of $13 billion by the end of this year. MSREF VII Global, also known as G7, closed on $4.7 billion of equity commitments in May 2010. At the end of last year, the largest investors in G7 agreed to extend its investment period by 12 months in return for the cancellation of $700 million of the fund’s approximately $2.7 billion of uncommitted capital and the trimming of various fund fees.