Blackstone Real Estate Debt Strategies has agreed to acquire up to $869 million in performing single-tenant-lease financing loans from First Internet Bank.
The deal extends New York-based Blackstone's aggressive push into commercial real estate debt as traditional bank lenders retreat amid regulatory constraints. Blackstone has acquired $22 billion in commercial real estate loan portfolios over the past 24 months, it said in a release disclosing the deal.
The private equity giant's debt investment strategy targets regional and community banks looking to move some loans off their books. Indiana-based First Internet, launched in 1999, provides a range of consumer banking services in addition to making commercial real estate loans. It operates as a digital-first bank with $6.1 billion in assets.
The acquisition is the latest in Blackstone's recent buying spree that has included a $1 billion senior mortgage portfolio from PBB and $2 billion in commercial real estate loans from Atlantic Union Bank.
Blackstone is purchasing the First Internet loans on behalf of several life insurance companies, including Everlake Life, New York Life, Security Life of Denver, Fidelity & Guaranty Life and Protective Life, according to a copy of the loan purchase agreement filed with the Securities and Exchange Commission.
As part of the deal, First Internet said it plans to move about $550 million in deposits off its balance sheet, providing it with additional financial flexibility. Remaining proceeds are expected to fund near-term loan growth opportunities.
“This proposed transaction is a decisive step that advances key strategic priorities, including strengthening our capital position, accelerating operating performance towards our near-term target of 1% return on average assets, and significantly enhancing net interest margin,” David Becker, CEO and chairman of First Internet, said in a statement.
The sale reduces the bank's exposure to longer-duration assets and moves interest rate sensitivity toward neutral, Becker said.
“Reducing our exposure to fixed rate, lower-coupon loans is a meaningful component towards further optimizing our earning asset base, providing balance sheet flexibility and a resilient earnings profile regardless of the interest rate environment,” he said.
Blackstone is buying the portfolio at a 5% discount to the debt's outstanding balance. The portfolio carries a weighted average time of 4.4 years until the loans mature.
Asset class appeal
Single-tenant-lease financing loans represent a specialized commercial real estate segment secured by properties leased to single corporate tenants under long-term agreements. Institutional investors prize these assets for predictable cash flows and credit quality.
The sale represents about 22% of First Internet's total loan portfolio.
The sale would leave First Internet with about $1 billion in commercial real estate loans on its balance sheet. Indicative of the performing nature of the loans being sold to Blackstone, First Internet had a very low commercial real estate loan delinquency level of 0.2% compared to an industry average of 1.5% as of June 30, according to data from the Federal Deposit Insurance Corp.
First Internet's loan portfolio totaled $4.3 billion as of June 30 and is expected to shrink to about $3.5 billion. The deal is expected to close around Sept. 18. First Internet retains servicing responsibilities for all its sold loans.
For the record
Piper Sandler Loan Strategies served as the introducing broker. Gibson, Dunn & Crutcher and Ballard Spahr advised Blackstone.