NEW YORK CITY-After 18 months of negotiations, the Royal Bank of Scotland and Blackstone and are nearing a deal to transfer $2 billion of distressed UK property loans to the US private equity giant, reports show. According to the Financial Times, the transaction would offload the loans into a Blackstone-managed account, while allowing RBS to retain a share of future profits from the fund. A source close to the deal says it should be completed by the end of 2011.

Under the transaction, Blackstone would purchase 25% of the fund’s equity at a discount, but will assume the management of the entire portfolio from RBS. In turn, RBS will sell down the remaining 75% of the loans through disposals, the FT says.

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