Deutsche readies fresh £400m Chiswick Park CMBS in Blackstone cash-out refinancing

Deutsche Bank is lining up a fresh £400m CMBS for Blackstone’s Chiswick Park as part of a wider £600m cash-out refinancing which will crystallise near to £80m in profit for the global private equity firm two years after paying £480m for the West London business park.

DB long logoCoStar News revealed five weeks ago that Blackstone has shelved plans to sell Chiswick Park for at least the next two years, as bids came in below the £800m asking price, and was instead seeking a fresh £600m financing package – comprised of £400m in senior debt and a £200m mezzanine loan.

Deutsche Bank is underwriting the four-year £400m senior loan at a margin expected to close inside 300 basis points over three-month LIBOR.

The fresh CMBS is expected in time for the June interest payment date (IPD), dependent on the time it takes to arrange the £200m mezzanine syndicate, below the new CMBS.

Blackstone has spent up to £40m in asset management costs in the Chiswick Park in its so far two-year ownership. Based on this estimate, the global private equity firm’s all-in £520m spend will be fully repaid on the £600m refinancing, including a profit of around £80m, less transaction, agent, legal and marketing costs.

A further all-equity profit will be realised upon a successful sale above £600m being achieved likely in around two years after the 12-storey Building 7 is completed and leased and the entire complex is sold on, likely to a sovereign wealth fund.

Blackstone’s loan-to-cost (LTC) for the refinanced Chiswick Park, based on the estimated £520m all-in, is 76.9% on a senior-only basis and is 115.4% on a whole loan basis.

The new CMBS is expected to require minimal or no early pre-payment charges to allow Blackstone to finally sell Chiswick Park in summer 2015, for which two securitisations spanning four years will have been used for financing.

The refinancing, which cashes-out Blackstone’s original equity stake, was the next best option for the global private equity firm after the sale plan was shelved, in part due to the unbuilt seventh building, for which speculative development is due to begin this month.

Deutsche Bank was selected ahead of a raft of banks including Goldman Sachs, Morgan Stanley, HSBC, Barclays, Lloyds Banking Group and Royal Bank of Scotland.

Eastdil Secured arranged the refinancing for Blackstone.

The existing bondholders in the current Chiswick Park CMBS – which are thought to include M&G Investments, PIMCO, BlackRock and Legal & General Investment Management – are considered the natural buyers of the new CMBS debt given that they are familiar with the asset, the borrower, the lease profile as well as the loan documentation.

As a result, Deutsche Bank was always a strong contender for the refinancing mandate.

The current CMBS, DECO 2011-CSPK Limited, had an outstanding balance of £293.54m at the January IPD, in addition to GIC Real Estate’s £61m junior loan. Bonds in DECO 2011-CSPK are trading at par in secondary markets.

Blackstone’s speculative development of Chiswick Park’s 334,000 sq ft seventh building begins this month, with completion expected in December 2014, with the scheme ring-fenced from the new CMBS collateral pool.

Lend Lease has been appointed as contractor and Stanhope as development manager on the project which is expected to cost in the region of £80m. Building 7 will bring the total amount of built space in Chiswick Park to 1.8m sq ft.

Since Blackstone acquired the West London business park from the Chiswick Park Unit Trust in March 2011 for £480m, a string of tenants have signed up, including International SOS, Aker, Otis and Swarovski, as well as Aker which pre-let the entire 220,000 sq ft space in Building 6.

Blackstone and Deutsche Bank declined to comment.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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