Blackstone Said in Talks to Seize CalWest Properties

Blackstone Counters Fee Pressure Via Custom Pension Deals
The headquarters of The Blackstone Group LP. Photographer: Daniel Acker/Bloomberg

Blackstone Group LP is in talks to take ownership of about $2 billion of industrial properties from Walton Street Capital LLC as debt on the assets matures, two people briefed on the discussions said.

Blackstone, based in New York, owns about $1 billion of junior debt on the real estate, putting it in a position to wrest control if Walton Street defaults, said the people, who asked not to be identified because the talks are private. That’s likely because the properties, known as the CalWest portfolio, are now worth less than the $2.45 billion of loans, which come due on June 8, the people said.

Walton Street bought the portfolio of 95 industrial properties, many of them in California, for about $2.8 billion five years ago as commercial real estate prices peaked. They are now worth almost 30 percent less, said one of the people. Walton Street, based in Chicago, hired CBRE Group Inc. late last year to try to sell the assets before the debt matured.

The properties are about 84 percent leased, down from about 93 percent when Walton Street bought them, one of the people said.

Peter Rose, a spokesman for Blackstone, declined to comment. Eric Mogentale, managing principal at Walton Street, didn’t immediately respond to a telephone call and e-mail requesting comment.

Walton Street’s 2007 purchase of the CalWest portfolio was financed with $1.1 billion of senior debt and $1.35 billion of mezzanine loans. Blackstone, the world’s largest private equity firm, owns almost all of the mezzanine debt and is in talks to obtain about $1.35 billion of new financing for the assets, one of the people briefed on the discussions said.

The talks were reported yesterday by Crain’s Chicago Business.

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