Blackstone Group LP is close to borrowing as much as $1.35 billion from lenders including MetLife Inc. to replace debt coming due on 21 office properties, according to three people with knowledge of the refinancing.
MetLife, the largest U.S. life insurer, and New York Life Insurance Co. plan to underwrite a two-year senior mortgage of about $850 million, with three one-year extensions, said the people, who asked not to be named because the talks are private. Government of Singapore Investment Corp. would provide a mezzanine loan of $450 million to $500 million. The refinancing is scheduled to be completed in July, one of the people said.
The office buildings, mostly in California, came mainly from New York-based Blackstone’s 2006 acquisition of CarrAmerica Realty Corp. and a joint venture’s purchase that year of Trizec Properties Inc. Some of the existing loans on the properties were bundled into commercial mortgage-backed securities sold in 2006 and 2007, near the real estate market’s peak.
The refinancing shows institutions’ increased willingness to make and hold loans as U.S. office occupancy improves. Life insurers account for about one-tenth of commercial-property financings and have been “very active” in lending to high-quality buildings during the past year, said Richard Parkus, head of commercial real estate debt research at Morgan Stanley in New York. The companies typically can lend at lower interest rates than banks because they are investing their own money as opposed to loaning out borrowed funds.
“The interest rates at which securitizations are getting done today are high relative to the levels which life companies will accept,” Parkus said. “Life companies now are taking a very large slice of a very small pie.”
Peter Rose, a spokesman for Blackstone, declined to comment, as did Christopher Breslin, a spokesman for New York-based MetLife, and William Werfelman of New York Life. A GIC representative also declined to comment on the refinancing, which was reported May 27 by Commercial Mortgage Alert.
U.S. commercial property prices have rebounded more than 40 percent from their mid-2009 trough and are about 15 percent below their 2007 peak, according to a May 5 report from Green Street Advisors Inc., a Newport Beach, California-based real estate research firm.
“The deals that were underwritten in ‘06 have looked horrible but now if I have a mortgage maturing, I should be able to have a conversation with the lender,” said Mike Kirby, director of research at Green Street. “The CMBS market still is not anywhere near as big as it was so you have more volume coming due than it’s obvious the market can handle. You have to be a little creative in how you solve that problem.”
Banks have arranged $11.9 billion in commercial mortgage-backed securities this year through May, compared with $11.5 billion in all of 2010, according to data compiled by Bloomberg. Sales plummeted to $3.4 billion in 2009, choking off funding to borrowers with maturing loans. A record $234 billion of the debt was issued in 2007, the Bloomberg data show.
The new floating-rate loans would give Blackstone more flexibility when it decides to sell the buildings, since fixed-rate loans can impose prepayment costs, said two of the people with knowledge of the financing negotiations.
The properties being refinanced include 9665 Wilshire Blvd. in Beverly Hills, California; Westwood Center at 1100 Glendon Ave. and Wells Fargo Center at 11601 Wilshire Blvd. in Los Angeles; the Campus at McCarthy Ranch in Milpitas, California; Mountain View Gateway Center in Mountain View, California; and the Sorrento Towers in San Diego, the two people said.
5.7 Million Square Feet
The entire portfolio has a combined 5.7 million square feet (529,500 square meters) of space, said one of the people.
Blackstone became the largest U.S. office-property owner through three key acquisitions in 2006 and 2007. In addition to Washington-based CarrAmerica, which owned 285 buildings, and Trizec, Blackstone in 2007 purchased Chicago-based Equity Office Properties Trust, which had held 580 buildings across the U.S.
Blackstone sold many of the buildings to pay down debt and now holds stakes in about 400 office properties with more than 59 million square feet, according to the Equity Office website.