Blackstone Real Estate Partners is financing the acquisition of a portfolio of U.K. logistics and industrial properties in the commercial mortgage bond market.

The real estate arm of the Blackstone Group obtained a £366.2 million (US$490.08 million) mortgage and a £72.8 million ($97.42 million) mezzanine from Bank of America Merrill Lynch to purchase the 127 properties from Brockton Capital in August. (Brockton had accumulated the properties in three transactions between 2013 and 2015, according to ratings agency DBRS.)

The mortgage, which pays 2.2% above three-month Libor and has an expected maturity of November 2019 and a final, legal maturity of five years, is now being used as collateral for a mortgage bond offering dubbed Taurus 2017-2 UK DAC.

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Five tranches of rated notes will be offered in the transaction: £164.5 million of Class A notes are rated AAA DBRS; £53.22 million of Class B notes are raed AA rating; £33.7 million of Clas C notes are rated A; £51.8 million in Class D notes are rated BBB; and £44.7 million of Class E notes are rated BB.

BAML will retain 5% of the loan’s facilities for risk-retention purposes.

CBRE Loan Services is the servicer.

The transaction includes an £8 million liquidity facility that is available to cover interest shortfalls on the A and B notes (and will be sized to cover 12 months of coverage on the notes).

Among the strengths of the transaction, according to DBRS, is the fact that about 70% of the portfolio’s properties are “last-mile” logistics delivery centers located in the U.K.'s most populated metro areas. DBRS says these businesses are benefiting from the upsurge in online shopping and demand for faster delivery of products. Those in the portfolio have a high occupancy rate of 92% spread among more than 1,000 tenants (none representing more than 2% of gross rental income).

Among the challenges is the allowance for Blackstone to sell the portfolio without repaying the loan, so long as the acquiring firm has at least €2 billion of commercial real estate assets in Europe or €5 billion globally.

It is also unclear how “Brexit” will impact U.K. commercial real estate rents and capital values, according to DBRS.

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