NEW YORK CITY-After 18 months of negotiations, the RoyalBank of Scotland and Blackstone and arenearing a deal to transfer $2 billion of distressed UK propertyloans to the US private equity giant, reports show. According tothe Financial Times, the transaction wouldoffload the loans into a Blackstone-managed account, while allowingRBS to retain a share of future profits from the fund. A sourceclose to the deal says it should be completed by the end of2011.

Under the transaction, Blackstone would purchase 25% of thefund’s equity at a discount, but will assume the management of theentire portfolio from RBS. In turn, RBS will sell down theremaining 75% of the loans through disposals, the FTsays.

Known as “Project Isobel,” the deal gaining traction as one ofthe most complex loan sales in the history of the UK. Originallyestablished as a $3 billion portfolio sale called “Project Monaco,”the transaction was downsized to a smaller pool of loans with astronger risk profile. Blackstone will work with RBS to arrange asecuritization of debt to help them with further funding, accordingto the FT.