Standing tall
The US$2.73bn CMBS to partly fund Blackstone’s acquisition of PS Business Park’s industrial assets marked one of the bright spots in an otherwise dour commercial mortgage-backed market in 2022.
The jumbo offering, called BX Trust 2022-PSB, stood out because Blackstone and the lead banks pulled off the biggest CMBS financing of 2022 for a take-private of a public company and furthermore in a highly stressed market environment.
BX Trust 2022-PSB is secured by a portfolio of 138 warehouses, distribution centres and other industrial properties in six US states, which Blackstone acquired via its US$7.6bn PS Business Park purchase in April. Bridge loan funding which was to be taken out by the CMBS was accompanied by a US$2.9bn equity contribution from Blackstone and US$1.96bn in bank financing.
This kind of multi-billion commercial real estate securitisation, which would have been easy to place at the start of 2022, had turned into a true challenge by the summer. Blackstone, like other CMBS issuers, faced the double hit of Russia’s invasion of Ukraine in February and the wider fallout from the US Federal Reserve’s most aggressive rate-hike campaign since the early 1980s.
The deal – which priced on August 4 – “was done as the market was getting tight”, said Larry Kravetz, head of CMBS finance at Barclays. Barclays, Citigroup, Morgan Stanley and Societe Generale were the joint leads alongside Bank of America, which was lead-left and bookrunner.
Although CMBS yields were rising, there was still optimism about industrial properties because of the strong demand for them to support the growth of online retail. And those strong fundamentals meant most industrial borrowers remained current with their loan payments. Average serious delinquencies on industrial mortgages stood at only 0.15% in August, which was well below the 5.7% on hotel loans and 5.67% on retail loans, according to Fitch.
While the transaction had “very limited credit risk”, it took a “huge effort from our global sales and our trading desk”, said Leland Bunch, head of CMBS capital markets at Bank of America.
That hard work pushed the deal across the finish line. All seven offered tranches were oversubscribed.
The mammoth US$1.4bn senior Triple A rated note came in at SOFR plus 260bp. This compared with a spread of 163.5bp on a US$781.6m similar rated note for another US$1.67bn Blackstone industrial deal that priced in April. The hefty spreads drew 67 accounts, more than the 21 accounts which participated in the April deal.
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