Blackstone Group’s real estate income trust subsidiary has sponsored the first single-asset commercial securitization of 2021, in a $477 million transaction secured by a portfolio of recently acquired garden-style apartments in five states .
According to a pre-sale report released Tuesday by S&P Global Rankings.
The interest-only loan, underwritten by Morgan Stanley and Deutsche Bank-affiliated DBR Investments Co., is funding the acquisition of Blackstone’s portfolio from JRK Property Holdings.
S&P has assigned preliminary AAA ratings to the $221.1 million Category A tranche of the deal. S&P also assigned ratings to five tranches of subordinated term notes as well as two interest-only tranches. The notes were priced on Tuesday with a one-month Libor coupon plus 70 basis points.
Properties in the portfolio include 3,206 units with an average age of 22 years, built between 1973 and 2009. Despite their age, apartment interiors, exteriors and commons benefited from approximately $31.7 million improvements from the previous owner – and Blackstone intends to invest an additional $12. million in upgrades.
Properties have performed well throughout the COVID-19 pandemic, according to the S&P report, with occupancy rates at all eight properties rising from 91.5% in May to 95.8% in November. The historic occupancy rate has been 92.6% since 2017.
The monthly rent collection rate has never fallen below 96.4%, providing cash flow that reached $35.7 million for the 12 months ending October 2020 – which increased by 32, $7 million during the same period in 2018.
S&P considers the transaction highly leveraged, estimating the loan-to-value ratio at 99.4%. It is well above the issuer’s LTV of 65.2%, based on a third-party evaluator valuation that is 34.4% higher than S&P’s.
S&P says the discrepancy is due to the rating agency’s use of higher figures for vacancy loss, credit loss, tax charges, management fees and reserves – as well as a higher capitalization rate of 6.69% compared to the expert’s 4.66%.