Blackstone unwound itself from a struggling multifamily portfolio and the threat of foreclosure last week, selling off a majority stake in 11 Manhattan buildings where rising rates had whacked revenues.
Buyer Atlas Capital Group scored a 51 percent interest in the properties for $142.4 million, PincusCo first reported. A Blackstone spokesperson confirmed the purchase price that also included $90 million in mezzanine debt.
Meridian’s Institutional Investment Sales Group, led by Helen Hwang, arranged the sale.
The lender on the mezzanine loan’s B note — a Korean group — had listed the debt for sale through Meridian in April, sparking broker speculation the loan was distressed.
In the months prior, the portfolio’s $270 million senior loan had been sent to special servicing, then downgraded by Moody’s for a sub-1 debt service coverage ratio, meaning cash flow was not covering monthly debt payments.
The slipping ratio signaled an elevated risk that Blackstone would default on the senior debt and an even greater risk the mezzanine lender, which is paid back second, would be forced to foreclose.
Atlas’ purchase of the mezz debt and the owner entity that borrowed the loan puts that risk to rest.
“The sale basically means Blackstone had decided to move on,” a broker said. “Atlas controls the ownership and it bought the loan so it can take the properties pretty quickly.”
Blackstone’s spokesperson said the $90 million mezzanine loan had been paid off, the borrower had tapped its final one-year extension option on the senior debt and that loan is no longer in special servicing.
“We are pleased to have reached an agreement with our lenders that is in the best interests of all parties involved,” the spokesperson added in a statement. Atlas did not return a request for comment.
What’s less clear is what the sale says about the portfolio’s current valuation.
Brokers extrapolated the $142 million purchase price for a 51 percent stake to peg the portfolio’s total value at $278 million — a 43 percent decline from the $487 million Blackstone had paid in 2015. PincusCo’s back-of-the-envelope math arrived at the same result.
That decline would mean the equity in the deal had been wiped out and the buildings were worth just $7 million more than the senior debt. Brokers said that decline would track with Atlas’ move to buy the entity tied to the mezzanine debt.
“My guess is [Atlas] figured it was buying the entity where the value was ultimately going to land; they were buying the controlling entity,” a broker said.
Multifamily valuations have fallen as rates have soared. Brokers estimate declines of up to 20 percent.
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But a spokesperson for Blackstone denied there was no equity left in the deal, adding that the value of the transfer doesn’t indicate anything about the value of the portfolio.
The firm said the challenges it faced stemmed from its value-add plan “because significant capital was required to bring the 60+ year-old product up to our standards,” the representative said.
Those buildings span Chelsea, Midtown and the Upper East Side: 250 West 19th Street, 31 East 31st Street, 344 East 63rd Street, 434 West 19th Street, 309 West 30th Street, 337 West 30th Street, 345 West 30th Street, 162 East 61st Street, 425 East 84th Street, 445 East 83rd Street and 451 East 83rd Street.
The Manhattan buildings are “not representative of the strength we’re seeing in our broader rental housing portfolio,” the spokesperson added.