REIT deals getting creative amid weary commercial real estate market

investmentnews.com:

When Blackstone Inc. put a portfolio of student dorms up for sale, it worked behind the scenes to make the deal even more attractive.

First, the firm dangled the option for buyers to take over $800 million in debt that had already been negotiated at low rates. And after bids came in, Blackstone stepped up as a provider of below-market financing, bringing the total package to about $1 billion.

KKR & Co. won the deal, agreeing to buy the properties from the $59 billion Blackstone Real Estate Income Trust. The sale was announced in time for a crucial April shareholder call, when President Jon Gray said the 7% premium BREIT got for the dorm sale was among “inconvenient facts for our critics.”

The private negotiations, described by five people familiar with the process, underscore how real estate owners are digging deep into their financial toolkitsas they look to facilitate sales and command the highest prices they can in today’s weary commercial-property market.

Across the industry, big asset managers are casting around for financial tactics to grease deals and drum up cash after a rapid rise in interest rates have pressured returns. 

This is the only instance of seller financing in BREIT’s history. In these deals, it becomes a lender of sorts, forfeiting the right to be paid upfront in full. These financings — more typically used for struggling assets — also tend to make it easier for buyers to raise bids.

The company has signaled it’s readying for a potential inflection point — President Jon Gray has said real estate values are “bottoming.” Seizing on fast-growing sectors was key to how Blackstone built its reputation in real estate, and the firm has been eager to have its massive REIT find ways to capitalize on one of