RBS selects Blackstone for £1.4bn loan book offload

After a year-long sale process culminating in a quartet of private equity real estate firms being shortlisted, RBS has agreed to offload a stake in a £1.4bn loan book to a special purpose company controlled by The Blackstone Group.

The Royal Bank of Scotland, one of the UK’s part-nationalised banks, has agreed the offload a stake in one of the largest commercial real estate loan books to hit the European market since the credit crunch.

According to reports yesterday evening and today, RBS has picked New York-based private equity and real estate giant The Blackstone Group ahead of other shortlisted private equity real estate rivals Lone Star, Westbrook with Kohlberg Kravis Roberts and Starwood Capital Group for the £1.4 billion (€1.54 billion; $2.24 billion) loan book.

The decision to select Blackstone happened this week, although the transaction still needs a final ‘sign off’ from senior RBS executives.

Under the terms of the deal, Blackstone will buy a minority stake in the loan book via a special purpose company and assume management responsibilities for the loans, leaving RBS with the majority stake. The deal is slated to enable RBS to benefit from future profits and avoid crystalising exits at distressed valuations.

The two parties are expected to drive a return of between 12 and 15 percent from the loans once a successful repositioning exercise has been executed. This will, in part, be aided by the use of external leverage to the tune of 60 percent, for the special purpose company. While RBS begins the transaction controlling the majority of the equity, it is expected to sell some of that to institutional investors at a future time.

RBS lent the second highest amount to commercial real estate borrowers and has already had to mark down the value of numerous assets from its overall £80 billion loan book following the global financial crisis.

The loan book, which fluctuated in size and composition during its year-long sale process, includes some of RBS’ most problematic loans, currently in its non-core assets division.  It includes loans arranged at loan to values of 90 percent and higher which would require active asset management.