The Blackstone Group is tapping the commercial mortgage bond market to finance its purchase of a portfolio of industrial properties from Prologis.

A fund controlled by the private equity group has obtained a $192 million loan from Wells Fargo; proceeds, along with $60 million in subordinate debt financing and $67 million of equity, were used toward the $300 million purchase.

This first mortgage, which pays only interest, and no principal, for its entire term of up to seven years, is being bundled into collateral for a transaction called Wells Fargo Commercial Mortgage Trust 2018-BXI.

The loan is secured by the fee interest in 34 industrial properties and one office property located primarily in Chicago and South Florida and totaling 4.4 million square feet, according to Fitch. Approximately 92.2% of the portfolio’s net rentable area is in Chicago and South Florida, and features immediate access to some of the country’s largest markets. “The properties are predominantly clustered around major interstates and thoroughfares within each market, and benefit from close proximity to numerous transportation networks,” the presale report states.

Despite this concentration, Fitch considers the portfolio to be “moderately” geographically diverse, with 35 properties (4.4 million square feet) located in four states and 16 individual submarkets.

Among other rating considerations, Fitch considers the property’s aggregate leverage, including debt held outside of the securitization trust, to be “high,” with a loan-to-cost ratio of 84%.

There is also some rollover risk. Leases on approximately 77.5% of the portfolio’s tenant rents (67.9% of net rentable area) will expire by 2024, when the mortgage would mature, if fully extended. And leases representing fully 17.6% of base rents expire by 2019, the year of the mortgage loan’s initial maturity.

The portfolio is currently 91.2% leased with an average remaining lease term of 4.8 years. The largest individual roll year is 2022, when 20.6% of rents (16.8% of NRA) expire.
Fitch expects to assign an AAA rating to the senior tranche of notes to be issued, which benefit from 54.2% credit enhancement.

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