Blueprint: Blackstone defaults on debt but sees waning fund redemption queues, Lone Star’s 22nd fundraise coming, AXA IM Alts raises notable capital for debt

Buyer’s remorse
Two high-profile defaults, both stemmed from portfolios acquired via larger platform acquisitions, signal that the pain long predicted for office owners has arrived.

In the US, Pacific Management Investment Corporation subsidiary Columbia Property Trust defaulted on a $1.7 billion CMBS loan against a portfolio of seven offices. PIMCO took the REIT private in 2021, after early signs that the return to office was beginning post-pandemic. During the transaction, the Newport Beach-headquartered manager refinanced the portfolio with floating rate debt, a decision that has come back to haunt them. While some specific portfolio level issues have not helped – its largest tenant Twitter refused to pay rent, for instance – the return to work bet has not materialized

In Europe, Blackstone failed in a bid to extend the terms of a loan it took out in 2017 after its acquisition of Finnish manager Sponda. The CMBS loan, with an initial securitized balance of about €541 million – the outstanding balance as of December was €297 million – issued against a portfolio of office and retail assets in Helsinki, was set to mature on February 15. It was granted two one-week extensions before ultimately defaulting on March 2. Blackstone originally tried for a year’s extension, offering assets to be put up for sale and an increase on the senior loan margin, sister publication Real Estate Capital Europe reported last week. The loan is now with special servicer Mount Street as Blackstone, and the wider market, awaits its outcome.

Redeeming feature
There has been a more positive note for real estate’s 800-pound gorilla, however. Blackstone has been the subject of much media attention for mounting redemption requests in its $71 billion non-listed real estate investment trust, BREIT, which senior executives, including president and chief operating officer Jon Gray, have made personal efforts to address. The New York-based firm entered its third month of receiving more redemption requests than its 2 percent monthly limit, and also continually exceeding its 5 percent quarterly limit, receiving $3.9 billion of requests in February. That was down notably from the $5.3 billion of requests received in January and the first time in six months the firm had seen a reduction in requests month-over-month.

Blackstone posted a negative 0.2 percent return in January. Further write-downs could scare investors off redemptions for fear of getting a lower value. It could also exacerbate the queue should investors sense a bottom further down the line. For now, the trend line has switched in the right direction. The next few months will tell the market a lot more.

Cometh the hour
Certain times in the private real estate market cycle suit certain organizations best. When markets reset, that is traditionally when Lone Star Funds, the mostly opportunistic business of sector magnate John Grayken, makes hay. The Dallas-based manager, which has raised more than $85 billion from institutional investors via 21 funds since its inception in 1995, is poised to make it 22.

Teachers Retirement System of Louisiana is one investor considering a commitment to Lone Star Real Estate Fund VII, according to a filing. No fundraising target was specified. Predecessor fund LSREF VI attracted $4.6 billion by its final close in 2019, which was invested across Europe, Asia, North America and Latin America.

Where will Fund VII be deployed? Lone Star typically levitates towards where dislocation occurs at scale. The firm reduced its Asia presence in 2021, judging there to be a lack of near-term opportunity in the region. With increasing instances of broken capital structures in Western markets, a Europe and North America-bias would be a good bet. “You have an idea of what the regional allocation may be when you form a fund, but you don’t know for sure,” Grayken told PERE last year in a rare interview. “Things can change a lot. Then you tend to do more business where the returns are most appealing.”

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