The Blackstone Group is tapping the commercial mortgage bond market to help finance the purchase of 11 multifamily properties from IMT Capital, according to Kroll Bond Rating Agency.

Blackstone Property Partners, an affiliate of the private equity firm, obtained a $563 million first-lien mortgage in May from Goldman Sachs (50%), Deutsche Bank (25%) and Wells Fargo (25%); it used proceeds, along with $262.1 million in equity, to acquire the properties, fund reserves.

The loan has an initial term of two years and can be extended by one year up to three times, for a total term of five years. It pays only interest (Libor plus 160 basis points), and no principal, for its entire term.

Approximately 6.0% of the pool comprises foreign national borrowers who do not have a FICO score available
The whole mortgage loan is represented by six pari-passu notes: three, seven-year, fixed-rate notes totaling $268.million, and three floating-rate notes totaling $268 million. Goldman and Deutsche are contributing their interests, totaling $536 million, as collateral for IMT Trust 2017-APTS.

The transaction is highly leveraged; Kroll put the loan to value ratio at 117.9%, based on the portion of the loan in the securitization trust and its own valuation of the properties. This is the highest among the eight single-borrower CMBS transactions it has rated in the past six months. (The second highest has an LTV, as measured by Kroll, of 101.1%.)

However, Kroll takes some comfort from the fact that, unlike many recent single-borrower commercial mortgage securitizations, there is no additional debt in place and no future debt is permitted. It views this as “credit positive,” since “the existence of additional indebtedness could introduce more classes of creditors, which could interfere with the mortgage lender’s exercise of remedies upon an event of a default.”

Neither Goldman nor Deutsche is retaining skin in the game of the transaction, however. Instead, a third party, not identified in the presale report, will hold certificates represent 5% of the fair value of all interests issued.

The apartment buildings that Blackstone acquired are a mix of Class A (68.1%) and Class B (31.9%) properties located in 10 submarkets in three states, Texas (56.7%), Florida (26.5%), and California (16.8%). They have a combined 4,488 units and were built between 1980 and 2014, and are on average approximately 20 years old.

The portfolio is currently 95.7% leased.

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