Benefit Street Partners closed an approximately $900 million commercial real estate collateralized loan obligation this week, marking more signs of life in a market that has been stalled by high interest rates and lower deal volumes this year.
The New York-based manager and Franklin Templeton affiliate closed BSPRT 2023-FL10 on September 28. The nearly $900 million CRE CLO is BSP’s tenth CLO completed since June 2017 and represents the first new issue, multi-asset class managed CRE CLO since August last year.
Michael Comparato, president of Franklin BSP Realty Trust, said the transaction allows the firm to increase capacity on its warehouse lines by converting a meaningful amount of warehouse liabilities to a non-recourse, non-mark-to-market liability structure.
BSP noted a couple of key factors behind its decision to go out with the deal. A BSP spokesperson said market debt spreads had moved in favor of the firm and the pricing made sense relative to BSP’s asset spreads.
“The pricing of this deal is wider than many of the deals done in 2021, but this worked for us because as one of the more active originators in the real estate credit space in 2023, FBRT has been closing new deals that take into account the recent change in capital markets and current wider spreads,” the spokesperson said.
According to BSP, the firm built up a pool of new assets that, when levered via CLO at today’s rates, achieved attractive returns for the equity invested in this deal. With the close, BSP was also able to execute on a reinvest deal giving the manager flexibility and a longer term on its debt.
BSPRT 2023-FL10 includes an 18-month reinvestment period as part of its terms as well as an initial advance rate of 85.5 percent and a weighted average interest rate of Term SOFR+275 percent before factoring in discount and transaction costs. JPMorgan Chase worked as the sole structuring agent, and Wells Fargo and Barclays worked as co-lead managers and joint bookrunners for the deal.
“We executed a relatively large transaction, priced it well, didn’t limit the pool to solely multifamily and were able to retain the key reinvest feature,” BSP’s spokesperson said. Atop the pricing achieved, they noted BSPRT 2023-FL10 adds more strength to the balance sheet of FBRT.
“It gives us flexibility to finance deals in the future and keeps capital available to take advantage of new opportunities in the market,” the spokesperson noted. “The real estate credit space remains capital constrained and having dry powder to lend could lead to promising returns as we deploy capital through the balance of this year and next.”
BSP, akin to other private credit managers, anticipates the CLO market will be restricted from making a full comeback with interest rates still elevated and overall lower deal volumes.
“There are only a handful of players in the space that have originated new loans to take to market,” the spokesperson said. “Additionally, many former issuers are constrained by their existing balance sheets and limited in what capital can be redeployed into new CLO offerings.”
The firm expects that CRE CLO deals will continue to be brought to market, but on a more sporadic basis until the market cycles through more of its current issues.