A real estate investment fund controlled by the Blackstone Group is tapping the commercial mortgage bond market to refinance a portfolio of life science, laboratory and medical properties, according to S&P Global.

Blackstone Real Estate Partners VIII obtained a $330 million mortgage on the portfolio, which consists of 18 buildings located in five states, from two banks, Citigroup and Deutsche Bank. Citi and Deutsche are now using the floating-rate loan, which has an initial term of two years and can be extended to as long as five years, as collateral for a single-asset CMBS called CGDB Commercial Mortgage Trust 2017-BIO.

S&P expects to assign an AAA to the senior, $154.4 million tranche of securities to be issued.

Bloomberg News

Among its primary considerations in rating the deal, is the “moderate” leverage; the rating agency puts the “beginning to end” loan-to-value ratio at 84.3%.

However, the portfolio is encumbered by two mezzanine loans, not included in the trust collateral, totaling $135 million.

While the portfolio is concentrated in a single industry, the 18 properties are spread across eight metropolitan statistical areas in California, Colorado, Massachusetts, Maryland, New Jersey, Pennsylvania, and Washington. And they are 95.2% leased to 35 tenants, with the largest, Novo Nordisk, accounting for approximately 5.3% of the portfolio's net rentable area and 11.7% of in-place base rent. The average remaining lease term is 6.3 years.

Of note, according to S&P, the first 30% of prepayments will be applied to the certificates pro rata, and only then will prepayments be applied sequentially among the certificate classes in the trust. “This structure benefits the junior certificate holders more than the senior certificate holders because subordination levels do not improve as the pool pays down,” the presale report states.

S&P’s presale report does not indicate how long Blackstone has owned the buildings, or what it paid for them, however the real estate fund acquired a number of life science properties through its $8 billlion purchase of a U.S. medical real estate investment trust BioMed Realty in January 2016. It has since divested some of the portfolio, according to press reports.

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