Blackstone recaps big California office portfolio

After investing $85 million in a troubled office portfolio controlled by an SL Green venture, the New York-based private equity and real estate giant has assumed a majority ownership stake in the properties.

The Blackstone Group has recapitalised a 31-property, 4.5 million-square-foot office portfolio in Southern California. As a result of the recapitalisation, the New York-based private equity and real estate giant is now the majority owner of the portfolio.

The portfolio previously was owned by a joint venture consisting of SL Green, Gramercy Capital and Square Mile Capital Management, which will maintain a minority stake.

Blackstone has invested approximately $85 million in equity into the portfolio to de-leverage it and establish significant leasing and capital reserves. Jacob Werner, a principal in Blackstone’s real estate group, said in a statement: “We believe our investment of capital should allow the portfolio to fully benefit from the continued market recovery.”

Although Blackstone declined to comment on specifics of the deal, sources said the firm invested in this portfolio on behalf of its Blackstone Real Estate Partners (BREP) VII global opportunistic fund. BREP VII is on the verge of closing on $13.3 billion in equity commitments, making it the largest commingled real estate fund ever raised. 

The portfolio comprises 59 buildings, mostly Class B office properties located in various submarkets of Los Angeles, Orange County and San Diego.  It includes assets such as the LA Corporate Center in Monterey Park, the Skyview Center in Los Angeles, 350 South Beverly Drive in Beverly Hills and Carmel Valley Center in San Diego’s Del Mar Heights. One source told PERE that, despite the properties being ‘Class B’ assets, the majority of them are already “well-leased.” 

The portfolio initially was purchased from Arden Realty in 2007 by Mexico-based Cabi Developers for a whopping $1.5 billion. Due to the economy turning and not having the capital to lease up the properties, Cabi lost the portfolio in 2008 to a junior ownership group led by Houston-based Hines. The SL Green-led venture took control of the portfolio in late July of this year after buying out Hines.   

As part of the recapitalisation, Blackstone and the SL Green venture also extended $678.8 million in mortgage financing with New York Life Insurance by two years. That mortgage, with was due to expire, also includes DekaBank Deutsche Girozentrale, Westdeutsche ImmobilienBank, Muenchener Hypothekenbank and Wells Fargo Bank as lenders. Total financing on the portfolio after the recapitalisation is $746.8 million.