Blackstone Inks Deal For $869M In Single-Tenant Retail Debt

Blackstone agreed to buy nearly $1B in loans from First Internet Bancorp, the latest deal in the investment bank’s more than $22B push into private credit.

Funds affiliated with Blackstone Real Estate Debt Strategies, the investment giant’s real estate credit manager, will acquire up to $869M in performing, single-tenant lease financing loans under the terms of the deal. The loans are slated to be sold for around 95% of the unpaid principal balance, and First Internet will continue customer-facing debt service support.

walgreens pharmacy

The transaction, which is expected to close on or around Sept. 18, accounts for roughly 20% of First Internet’s debt portfolio and the bulk of its single-tenant business.

The portfolio Blackstone is buying is made up of debt for retail properties spread across the United States, with a focus on outparcels and a broad mix of tenants that includes pharmacies, car washes, quick-service food chains and restaurants, Ken Lovik, First Internet’s chief financial officer, told Bisnow Friday morning.

Blackstone has aggressively expanded its commercial real estate debt holdings over the last two years. Executives notably said prices had reached their floor around the start of the second quarter last year, and it’s been looking for discounted deals since.

The firm closed its BREDS V fund in March with $8B raised, matching a record it had set in 2020, with a strategy tailored to capitalize on capital dislocations.

It's acquired more than $22B in commercial real estate debt over the last 24 months, including a 20% stake in a portfolio of debt from the now-failed Signature Bank.

In June, Blackstone picked up a $2B portfolio of performing multifamily and retail loans at a roughly 7% discount from Atlantic Union Bankshares Corp. Last May, it acquired a $1B portfolio of senior mortgage loans from German lender Deutsche Pfandbriefbank.

For First Internet, the sale will cut the bank’s balance sheet as it works through credit issues in its franchise finance and small business loan portfolios. The majority of the loans it is selling to Blackstone were underwritten in the years just before the Federal Reserve’s tightening cycle that began in early 2022, when capital costs were much lower.

First Internet posted a net income of just $200K and an earnings per share of 2 cents in the second quarter. Its Nasdaq-traded stock is down more than 4% this week and more than 30% year-to-date.

“By having a smaller balance sheet, it accelerates us towards some of our near-term profitability goals,” Lovik said. “It helps us with interest rate risk management. It gives us a more flexible balance sheet going forward to give us multiple avenues to enhance profitability.”

Executives at First Internet, which started in 1999 as a pioneer of branchless banking, are forecasting that it will be able to grow its net interest margin through new originations. It's targeting a 2% growth rate for its loan portfolio in the third and fourth quarters and 5% to 7% growth in 2026.

First Internet is also working to expand its partnership with Blackstone beyond the management of the portfolio and into new single-tenant debt underwriting.

“We are in the process of hopefully getting a forward flow agreement set up with them, where our team is originating for Blackstone,” Lovik said.

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