Walton Street to hand CalWest assets to lenders

The Chicago-based private equity real estate firm is expected to default on the debt backing a 95-property industrial portfolio and return the assets to lenders, as the bulk of the loans on the properties are scheduled to come due this week.

Walton Street Capital is turning over a vast industrial portfolio to its lenders amid fallen property values and the looming maturity of loans against those assets, according to media reports.  The firm, led by managing principal Neil Bluhm, had acquired the assets for $2.75 billion from the California Public Employees Retirement System and RREEF, the alternative investments business of Deutsche Bank, in 2007. Walton Street declined to comment.

One of the largest US industrial sales at the time, the CalWest deal was financed with about $2.45 billion of debt, including a $1.1 billion senior loan and junior debt pieces with a total face value of about $1.4 billion. The loans against the 23 million-square-foot portfolio, which includes 95 industrial assets – the bulk of which are in California, Washington and Oregon – are scheduled to mature on June 8. Meanwhile, the portfolio, which has since been rebranded the West Coast Industrial Portfolio and is roughly 85 percent occupied, currently is worth about $2.1 billion, according to Walton Street.

With Walton’s anticipated default on the CalWest debt, both The Blackstone Group and Morgan Stanley have been jockeying for control of the portfolio, according to an April article in The Wall Street Journal. Morgan Stanley, through its Prime Property Fund, owns a $115 million junior debt piece, but Blackstone – which owns both senior and junior debt backed by the assets, including approximately $600 million of mezzanine debt that was acquired in April 2011 – is said to be in a strong position to take over the portfolio.

Walton Street currently is looking to raise capital for Walton Street Real Estate Fund VII, which is targeting $2 billion in equity commitments for value-added and distressed properties in the US, particularly office and hotel assets. In March, the Teachers Retirement System of Louisiana approved a $50 commitment to the fund, which was launched in 2011.