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Blackstone sponsoring first CRE CLO since January

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Blackstone Group is sponsoring a $1 billion commercial real estate CLO transaction, backed by a portfolio of pari passu participations in commercial mortgages for primarily lower-grade office, mixed-use and hotel properties.

According to a presale report from Moody’s Investors Service, BXMT 2020-FL3 will include eight classes of notes structured similarly to a collateralized loan obligation, supported by cash flow from 26 borrowers of short-term commercial mortgage loans between two and four years (with optional extension periods).

The Class A notes totaling $525 million have preliminary triple-A ratings from Moody’s and Kroll Bond Rating Agency, with an assumed coupon of 140 basis points over one-month Libor.

The transaction is static, meaning no new assets can be added to the portfolio mix at a later date.

The largest loans in the pool involve either refinancings or acquisition costs for the borrowers. Office properties make up nearly 60% of the pool of assets, followed by mixed-use (15.2%), hotel (10.4%), retail (8%) and multifamily properties (6.4%).

Moody’s estimates the weighted average rating factor of the deal at 5010, reflecting the lower property grade assessment for many of the assets. (CRE CLO transactions typically include bridge loans for properties undergoing renovations and improvements, which have yet to generate regular cash flow income for developers and operators).

The deal has a weighted average life of 3.46 years.

The CRE CLO is Blackstone’s first since pricing a $1.25 billion transaction in January, in what has been a slow year for CRE CLO issuance. Only nine transactions totaling $4.3 billion have priced this year, compared to the record $15.8 billion across 29 transactions in 2019, according to data research from Finsight.

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