B2R Finance from Blackstone: A Primer

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I think everybody knew it was a matter of time until somebody stepped in and created a lending product that the market has been dying for. With an unprecedented number of investors scooping up distressed properties over the last several years, the demand for non conventional financing for non owner occupied property has been at an all time high.

I’ve worked with many investors over the last few years who were willing and able to buy more properties, but were at a loss having hit the max allowable limit set by Fannie Mae.  In previous market cycles, many local and regional banks stepped into this roll, but even their ability to lend on single family properties has been limited (due, mostly in part, to the huge losses these banks incurred during the downturn).

But here were, at the beginning of 2014, and Blackstone’s B2R finance has just become available to investors. While somewhat untested, I think they will be the first of many players that get into the portfolio financing space.

Having only just begun the conversation with B2R finance, I’m by no means far enough down the road to form an experienced opinion, although I do have some initial thoughts, based on my conversation with their rep…

Related: Is Blackstone’s B2R Finance Good For The Market Or A Sign To Get Out?

An Assessment of Blackstone’s B2R Finance

Loan Size – Based on my conversation and what is advertised on the website, the minimum loan size they would consider is $500,000 and the max is $3,000,000.  With the kind of money Blackstone has been able to raise, it doesn’t surprise me that the minimum portfolio they would consider would be in the neighborhood of a half  million.  Not only is it more efficient for them to bite off bigger chunks, it also elevates the caliber of the investors that they will work with.

Interest Rate – Considering the fact that there aren’t really any other major players with this loan product, I think their interest rate is actually pretty fair. As of this week, I was told the interest rate would vary between 5.5% and 6.25% (based on a particular swap index and adjusted based on their internal risk calculation). One very important thing to note however, is that this rate is locked for the entire term of the loan.

Loan Term – The current offering is either a 5 year loan or a 10 year loan (balloon) and up to a 30 year amortization. In my opinion, the ability to lock in a 10 year loan for around 6% is very strong. I doubt many people would bank on having access to these kinds of rates 5 to 10 years from now.

Down Payment – The loan program allows for 75% LTV if the properties have been owned for over a year.  Thus, there is some ability to cash out if you’ve got considerable equity in the properties and you’ve owned them over a year. If the package is a new purchase or refinanced within that first year of ownership, the requirement is 75% loan to cost. Thus, you are going to be required to keep your 25% equity in the deal.

Costs –  Origination isn’t too bad at 1.5%, but you will pay for an appraisal and due diligence fee on every property. In addition, they charge a flat $5,000 legal fee for each portfolio ….. which is easier to swallow if you can spread it over a larger portfolio of properties.  This legal fee does not include normal title charges, so you would need to include your local title charges into the closing costs as well.

Penalties – I would guess that much of their ability to lock in a fairly favorable interest rate has to do with locking in money on their side over the same period of time. Thus, the prepay period is essentially the length of the loan (4.5 years on the 5 year loan) and any property that is sold before the period ends will owe the balance of the interest that would have been paid had the property stayed in the portfolio.

Knowing this, investors that consider using this financing should really go into the transaction with a true buy and hold mentality. It doesn’t make sense to put this financing in place if your intention is to sell properties out of the portfolio during the life of the loan.

Ownership – Another benefit to this program is the ability to own and finance all of the properties in a corporate entity.  Unlike conventional loans where title is held personally, this allows for corporate ownership and limited liability for investors. That said, there is still a small amount of underwriting done on the individual (primarily just a 680 credit score) and a personal guarantee is also required.

Related: Blackstone Beats Back the Bears

Keep in Mind…

This isn’t a comprehensive assessment of this loan program, but at initial glance. I think it’s going to be a tremendous product for buy and hold real estate investors. I’m in the process of putting financing on a portfolio of mine right now and will report back in a few months with my experience.

What are you hearing about this new portfolio financing for investors? Let’s discuss…

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About Author

Ken Corsini G+ is the founder of Georgia Residential Partners, LLC - a real estate investing firm based in Atlanta, Ga focused on creating turn-key investments for investors all over the country. He's been investing in real estate since 2005 with hundreds of real estate transactions.

21 Comments

  1. Great summarizing of Blackstone loan program. I would qualify with no problem, but tying up my properties in a package deal just irks me. Freedom to buy and sell with no holds barbed is the only way I will do business.

    For the bigger players, this sounds like it should work for them giving them more buying power.

  2. Very informative posting, good lead. Thank you for sharing. I’m in support of any new program that allows the true real estate investors with the track record and strong history to be able create arbitrage with less headaches and requirements. After all, if all the stated information checks out, then why to keep individuals that can help improve our current economy situation from helping. I will check them out, and give them a shot with one of my commercial portfolio holdings. Good luck with your transaction Ken C.

    – John N. Rodriguez

  3. Any word on the amortization schedule? I don’t think you meant to indicate a 5 or 10 year AM, just a balloon at those intervals. Or perhaps they are only offering an I/O product?

  4. Thank you for the information you put out. I may not be able to use this now, but I keep it in the back of my mind for the day I will need it.

    • Also, Do you know what type of markets they look to lend in? I am looking and buying primarily at secondary and tertiary markets now, until I can move into the better ones. Do they differentiate the loan sizes for this at all?

  5. I sent in all my info and spent some time working with a rep, only to find out they don’t have the ability to lend in Michigan, or several other states, right now. Check on your state before you put too much effort into it.

    • I just spoke with them and told them I’m in Michigan and they did not tell me they did not lend here? Has this changed?

      • I would ask specifically because I spent several hours putting together all the info they requested and speaking with reps on the phone. They called me back a couple weeks later and said that our portfolio was one of the strongest he had seen but he just found out he couldn’t lend in MI. This was early-mid Feb 2014.

  6. Ken, I am going through the same process. They are requiring me to put the properties into a newly created LLC. Are they asking you to do the same? It’s the first time I’ve seen a lender require a new LLC even though the properties are already in an LLC.

      • I can see selling the portfolio would be even more attractive if you sold it with financing in place. But if you want to sell just a portion of you portfolio things get complicated.

  7. This program definitely fills a large hole in the market. However, some of their terms seem “predatory” in nature that puts me off. Specifically having pre-pay penalty makes no sense (when they already have taken origination fee and a meaningless “legal” fee).
    I agree that in absence of alternatives – many investors (including me) may have to go with them..

    Good luck Ken and do keep us updated on how it goes and what you learn in the process!

  8. Nice summary of the basic terms.
    It will certainly be great for some.
    Like several others there are some terms that are pretty unappealing to me.
    Other than maybe ease of use I don’t see much advantage over trying to get a commercial blanket if you want to encumber several places at once.

  9. David Cheung on

    Would you be able to borrow & cash out from the existing portfolio if you gain equity? For example, if I borrow 1 million @ 75% LTV in 2014. My portfolio value appreciate to 1.3 million in 2015. Would I be able to refi 75% of the 1.3 million? That’s about 975K.

  10. I agree with some of the other posts / replies that Blackstone’s B2R mortgage program may be missing the mark with some of its requirements, particularly the prepayment penalty. From a financing point of view, I understand what they need to accomplish and it may give us a peek into their underlying commitments to the source of the money. But, as a borrower, having a slim 6 month window to sell or refinance would worry me.

    I believe they may be trying to accomplish three distinct things with this program.
    1. Enable smaller and midsize investors to continue the good work that investors have done for the Housing Markets. Buying when no one else could, or would, investors, both small and large, helped raise prices, stabilize neighborhoods, and give homeowners decent places to rent. By loaning others the money necessary to soak up the remaining inventory, they can move on to “monetizing” their past efforts as they shift their eyes towards the exits. With housing prices continuing their upward journey, what better time to sell and securitize their recently acquired cash flow.
    2. Identify / tie up other possible portfolios of properties to add to their portfolio. What better way to have access to more rentals than to own the underlying mortgages on them? Whether through structured buyouts or default, another pool of homes to choose from will be tempting.
    3. The third goal may be the silver lining to other investors. As one of the first lenders in this space, they may compel others to lend in this space. As others come in, more reasonable terms may be the end result.
    Don’t get me wrong here, I applaud Blackstone and others for their efforts. I like what I see in the B2R program but urge “Borrower Beware”…

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