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The AAAs in the deal looked like reasonable value at Libor+0.85bps (with a 32% LTV at that level) but the BBBs at L+2.5% looked less appealing, even though they were 5x oversubscribed. The LTV at 58.5% at the BBB level doesn’t look too bad, but with only 12.9% relative debt yield, there is a significant risk that in a downturn scenario there could be shortfall if the properties have to be sold, as debt yield during the last recession was close to 14%/15%.
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The properties in this pool are of mixed quality and mainly built in the 1980s; it might be questionable how big the actual “logistics” exposure is as many of the tenants are active as local manufacturers and the building/construction exposure is reasonably high. Even though the warehouses are old, one can argue that replacement cost is limited and that you pay for the location. Given the age of the properties and tenancy profile, they require hands-on management and longer term dedication from the sponsor and the manager. M7, the asset manager in the deal, co-invested 5% in the equity so they are well aligned with Blackstone. If the strategy was to maintain and upgrade parts of the buildings, spend CAPEX and consider this as a long term investment to generate income, we would have been very happy to invest in this transaction.
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