MSREF VII acquires €150m Blackstone mezzanine loan

The $4.7bn global opportunity fund has purchased the restructured mezzanine debt secured by Blackstone’s Hospitality Europe portfolio after the properties’ senior mortgage was renegotiated.

Morgan Stanley Real Estate Investing has acquired a mezzanine loan secured by a portfolio of European hotels owned by The Blackstone Group. Morgan Stanley’s $4.7 billion opportunity fund, MSREF VII, purchased the €150 million loan after the portfolio’s original €480 senior mortgage was split in two following a restructuring of the deal.

Citigroup Global Markets and ING Real Estate Finance, joint co-ordinators and bookrunners for the restructuring, said in a statement that the original senior loan had been split into a €330 million senior facility and a new €150 million mezzanine loan, with maturities extended by five years. MSREF VII acquired the new mezzanine debt facility, while a syndicate of five banks, including Aareal Bank, Citibank, Deutsche Post Bank, ING Bank and Swiss Re Capital Management, provided the senior mortgage.

The deal marks one of the largest transactions for MSREF VII, which has invested roughly $1 billion of equity to date, people familiar with the matter said. Debt investments are expected to feature prominently in the fund’s deal flow, with John Klopp, joint chief executive officer and joint chief investment officer of MSREI, telling PERE last June that “virtually everything [MSREI was] doing is debt related in one way or another”.

Klopp, who at the time was head of Americas and global head of investing, added: “Over-leveraging is very widespread. The market is beginning to turn in terms of fundamentals, and the logjam is beginning to break.”

Blackstone originally acquired the pan-European hotel owner and asset management company, Hospitality Europe, and its portfolio of eight hotels in Amsterdam, Brussels, Frankfurt, Paris, Prague and Stockholm in 2006 for a reported €650 million. The deal was funded through Blackstone’s $5.3 billion Blackstone Real Estate Partners Fund V and the €1.6 billion Blackstone Real Estate Partners International Fund II, which closed in 2006 and 2005, respectively.

The Hospitality Europe portfolio currently comprises nine hotels, including the 1,008-room Sheraton Frankfurt Hotel and Towers Conference Centre and the 462-room Sheraton Stockholm Hotel and Towers, according to data provider Real Capital Analytics.