As blog readers will know, we took note of an odd transaction in which pension and/or endowment funds to the tune of $4 billion dollars were invested in a real estate investment trust run by Blackstone, Inc.* According to reports in the financial press at the time, reports which largely seemed to be reprints of a news release by Blackstone, Jagdeep Bachhar, the Regents' Chief Investment Officer, heard about what seems like a run on the bank on TV, and - in effect - bailed out the trust in exchange for a "guaranteed" 11.25% return, far above current interest rates on, say, US Treasury securities.
Presumably, there were reasons why there was a run and those same reasons suggest that there must have been significant perceived risk. Since the trust wasn't earning 11.25%, presumably the extra return for UC had to be at the expense of other, smaller investors. The whole story raised questions. So far, the financial press hasn't looked deeper into the transaction.
However, the financial press has reported that various UC unions have protested the investment because Blackstone is noted for taking over residential housing developments and raising rents. From Yahoo Finance:
Unions representing 110,000 University of California workers demanded that the system divest holdings from Blackstone Inc., including a recent $4 billion investment with its massive real estate trust. The groups are contending that the relationship with the private equity firm will worsen the housing shortage for students and employees, according to a letter dated Friday. The University of California’s investment office struck a deal earlier this month to inject $4 billion into Blackstone Real Estate Income Trust...
Last year, Blackstone funds paid $12.8 billion for student-housing landlord American Campus Communities.
A representative for the University of California confirmed it has received the letter and was reviewing it. The representative also reiterated earlier comments by Bachher that the investment “is an opportunity that comes only through strong, trusted partnership” and provides the university system with a well-diversified real estate portfolio. Representatives of Blackstone didn’t immediately respond to a request for comment.
Full story at: https://finance.yahoo.com/news/blackstones-4-billion-california-deal-183800804.html.
The New York Times reported on a controversy involving Blackstone and rent-raising earlier this month:
Tenants living in Manhattan’s largest apartment complex, Stuyvesant Town-Peter Cooper Village, won a battle to keep their rents insulated from potentially sharp increases, after a judge ruled this week against their landlord, the Wall Street private equity firm Blackstone. The company is the largest owner of commercial real estate in the world, and has lately been expanding into rental housing. Blackstone bought the apartment complex in 2015 for about $5.4 billion, in a deal that was praised by local politicians because of promises that nearly half the 11,200 units would remain affordable to middle-class families.
The legal dispute centered on whether other units at the complex, roughly 6,000, should also remain rent stabilized. Rents in such units can only go up by set amounts every year, and renters have a right to renew their leases. The new ruling was the latest development in the turbulent history of the complex, a group of 110 plain red brick buildings built across 80 acres in the 1940s as middle-class homes that has since become an emblem of many of New York City’s most high-profile housing disputes.
It comes as the role of investors and private equity firms in housing, both in New York and nationwide, has drawn heightened scrutiny from housing activists and politicians amid soaring rents and dwindling affordability...
Full story at https://www.nytimes.com/2023/01/06/nyregion/nyc-apartments-blackstone-rent-dispute.html.
Here is and excerpt from the letter from the UC unions to Bachhar dated January 13:
Dear Mr. Bachher:
On behalf of over 110,000 represented workers at the University of California..., we write to express our dismay and unified opposition to the Office of the Chief Investment Officer’s (CIO) decision to invest $4 billion into Blackstone Inc.’s Blackstone Real Estate Income Trust... We call on UC to divest immediately from its recently acquired... holdings, along with the additional $2 billion the University already invests in Blackstone through the UC Retirement Plan and its General Endowment fund.
UC Regent Sherman’s statement that this investment will “benefit the 600,000 students, faculty, staff and pensioners from [UC]’s 10 campuses and six academic health centers” underscores the University of California’s apparent willful ignorance to the housing crisis impacting not only UC stakeholders but also the communities in which the University operates.
Across the U.S., hedge fund and private equity firms—such as Blackstone Inc.—are acquiring residential properties at unprecedented rates, converting them into rental units, raising rents, and evicting and displacing residents in the process, even during the pandemic. This buying spree by corporate and institutional investors leaves longtime residents unable to afford homes in communities where they grew up or raised their families. In fact, the United Nations has accused private equity firms like Blackstone of exploiting tenants, “wreaking havoc” in communities, and helping to fuel a global housing crisis. ”Blackstone’s practices…have abruptly increased the rental payments of [single family rentals], making them unaffordable for millions of the existing residents, decreased the availability and affordability of social housing, and has undertook aggressive evictions to protect rental income streams to satisfy investors.”
The housing crisis significantly impacts UC students, staff, academic workers, healthcare providers, and faculty laboring to find and afford housing close to UC campuses...
Sincerely,
Kathryn Lybarger, President AFSCME Local 3299
Stephanie Short, Asst. Director, UC Division CNA/NNU
Constance Penley, President Council of UC Faculty Associations (CUCFA)
Dr. Lorenzo Gonzalez, President Committee of Interns & Residents, SEIU
Katie Rodger, Ph.D., President UC-American Federation of Teachers (AFT)
Dan Russell, President UPTE-CWA Local 9119
Rafael Jaime, President UAW Local 2685
Neal Sweeney, President UAW Local 5810
Union of American Physicians and Dentists (UAPD)
Full letter at https://cucfa.org/2023/01/uc-investment-in-blackstone-worsens-housing-crisis/.
As it happens, the Regents meetings this week kick off on Tuesday with the Investments Committee and public comments. This matter is likely to come up at that point.
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*http://uclafacultyassociation.blogspot.com/2023/01/does-it-pass-financial-sniff-test.html.
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https://ia904704.us.archive.org/3/items/new-year-outlook/more%20blackstone.mp3
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