A real estate investment fund controlled by the Blackstone Group is returning to the mortgage bond market to refinance a portfolio of biomedical commercial properties it acquired in 2016, according to rating agency presale reports.

It recently obtained $960 million in loans from Deutsche Bank and Goldman Sachs; proceeds will be used to help repay $714.6 million of a $2 billion loan package used to fund the firm's $8.8 billion purchase of Biomed Realty Trust.

In addition, Blackstone is cashing out $216.9 million of equity.

The $725 million first mortgage,which has an extended term of up to seven years and pays only interest, and no principal, is being used as collateral for a transaction called DBGS 2018-BIOD Mortgage Trust.

There is also a $235 million mezzanine loan that is not part of the collateral for the deal.

Both loans are secured by Blackstone’s fee and/or leasing interest in 23 lab-office and parking properties totaling 2.4 million square feet across eight high-tech markets. There are 62 biomedical and life sciences research tenants.

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Most of the properties being financed were part of an original portfolio of 58 properties acquired in the 2016 buyout of BioMed, then a public real estate investment trust. That acquisition was partly financed in the mortgage bond market and partly in the corporate bond market. In addition, the collateral for the new deal includes additional biomedical properties since purchased by Blackstone and a 360,000-square-foot facility it developed in San Francisco for Illumina, a genomics research firm based in San Diego.

Fitch Ratings notes the current portfolio is highly leveraged, with a debt service coverage ratio of 0.89x and a 100.6% loan-to-value, based on the debt in the trust alone; after taking into account the mezzanine loan, the DSCR is 0.67x and the LTV is 133.2%.

Fitch also notes that many single tenants in the properties – representing 32.4% of the base rent – pay a below-market average base rent of $32.49 per square foot (compared to an appraiser’s estimate of $46.41 per square foot).

But 61.9% of the properties are in prominent, high-demand life sciences markets including San Francisco, San Diego and Cambridge, Mass. And the deal is based on an 87.6% lease rate that is well below the 94.9% weighted average occupancy rate of the covered markets (two of the facilities in the 23-property portfolio were were added to the initial pool analyzed by Fitch).

Blackstone has actually increased its portfolio-level rent for the covered properties to $34 a square foot, compared with $30.96 at the time of the BioMed buyout.

DBGS 2018-BIOD Mortgage Trust will issue eight classes of notes; a $340.5 million tranche of Class A tranche carries preliminary AAA ratings from Fitch Ratings, and benefits from 53% credit enhancement. The $65 million Class B tranche is rated AA, $43 million of Class C notes are rated A- and $68.5 million of Class D notes are rated BBB-.

There are also three unrated tranches totaling $173.7 million and a $36.25 million horizontal risk retention slice of the transaction that will be retained by PCSD PR Cap IV NR Reten Private Limited, a third party.

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