The Blackstone Group is in talks with Morgan Stanley Real Estate Investing (MSREI) to take control of a portfolio of 16 distressed US office properties that, according to a report by the Wall Street Journal, is valued at roughly $800 million.
The portfolio currently is owned by Morgan Stanley Real Estate Fund (MSREF) V, which acquired the assets as part of its $1.9 billion acquisition of San Mateo, California-based office REIT Glenborough Realty Trust in 2006. Since then, the fund has sold off many of the properties in the Glenborough portfolio, but it has decided to transfer the remaining assets to Blackstone rather than refinance or repay some $820 million in debt coming due next month.
Although both Morgan Stanley and Blackstone declined to comment, sources familiar with the situation have told PERE that Blackstone has owned the roughly $225 million in mezzanine debt associated with the portfolio since last year as part of the firm’s established debt acquisition strategy. Owning that debt put Blackstone in prime position to take control of the properties and assume the remaining debt.
The portfolio comprises a total of three million square feet and includes an office building on New Montgomery Street in San Francisco's financial district and the Aventine, a landmark building in La Jolla, Calif. The buildings in the portfolio are between 80 percent and 85 percent occupied.
The pending transaction follows news last month of Blackstone agreeing to acquire a 10.1 million-square-foot office portfolio from Duke Realty for $1.08 billion in what currently is on track to be the first investment for the firm’s latest fund, Blackstone Real Estate Partners VII. The Duke Realty deal, which is expected to close on or around 1 December, includes the assumption of $30 million in debt.