Affiliates of the Blackstone Group will market a series of commercial mortgage-backed bonds secured by an unusual asset: a portfolio of trade showrooms used exclusively by manufacturers and suppliers of home furniture and décor products.
According to a presale report from S&P Global Ratings, entities of Blackstone Real Estate Partners VIII LP and Blackstone Tactical Opportunities Fund II-Q LP are sponsoring a $1.15 billion transaction involving 16 product showrooms in North Carolina and Las Vegas that provide showcase space for the furniture industry, including semiannual trade shows.
BX Trust 2019-IMC is backed by a single, two-year floating-rate commercial mortgage loan (with three one-year extensions) secured by the fee and leasehold interests in the 16 showrooms. The interest-only loan will refinance existing debt, and provide the Blackstone affiliates a $173.9 million cash-out return on equity.
The Blackstone entities serving as borrowers on the loan, and manage the property through an affiliate, IMC. The interest-only loan was originated through Citigroup, Deutsche Bank, JPMorgan and Wells Fargo.
S&P estimates the trust loan has a loan-to-ratio of 113%, based on appraised values, and is supported by a 1.34x debt-to-service coverage ratio.
The capital stack of the BX Trust deal involves 10 tranches of notes, including a $330.8 million Class A offering with a preliminary AAA rating from S&P. S&P also rated the $115 million in Class B notes (AA-), $85.5 million in Class C notes (A-) and $113 million in Class D notes (BBB-). The agency also provided A-1 ratings to two tranches of interest-only commercial paper certificates.
S&P did not rate three subordinate classes: $157.7 million in Class E notes, a $141 million Class F notes tranche and $149.2 million in Class G notes. The sponsors will hold $57.8 million in risk retention stakes in the deal.
Thirteen of the showrooms serving as collateral are in High Point, N.C., a furniture manufacturing and showcase hub, but the square footage of those properties (5.2 million) is nearly equaled by the three larger showrooms in Las Vegas (4.3 million square feet).
According to S&P, the spaces are primarily used in twice-annual shows in High Point and Las Vegas to promote new home furniture designs and products. The remainder of the year, the showrooms are used by commercial tenants to serve as warehouse space and or for individual client presentations.
The spaces are primarily used twice a year (trade shows occur in Las Vegas in January and July and in High Point in April and October) by manufacturers and suppliers to meet with existing and prospective customers, showcase their latest designs and products, discover new and emerging trends in the industry, and enter into sales agreements. The remainder of the year they function as warehouse spaces, or to showcase products to individual clients.
The showrooms were 86.4% occupied as of January, which is the approximately historical rate for tenancy. With only six-year terms, S&P noted the high risk of tenant rollover and vacancies during the term of the loan, but also stated the showrooms have historically high renewal rates, exceeding 80%.
The properties are managed by Las Vegas-based IMC (International Market Centers), now an affiliate of the Blackstone entities. IMC was acquired by Blackstone and Fireside investments in late 2017 from Bain Capital and Oaktree Capital.
IMC assembled most of the portfolio from distressed property purchases in 2010, and consolidated them under Bain and Oaktree. According to S&P, these properties now dominate the furniture showroom industry, allowing Blackstone/IMC to cross-sell its showroom space in High Point, Las Vegas and Atlanta "rather than compete with each other. This also stabilized and grew rents."
The loan refinances debt from a 2017 commercial loan taken out by the sponsors shortly after the Blackstone buyout and included in the $955 million BX Trust 2017-IMC deal. One additional showroom property acquired since 2017 is included in the 2019 transaction.
