UC Ups Blackstone Stake By $500M as BREIT Bleeding Continues

The University of California has increased by $500M a $4B investment it made earlier this month into Blackstone Real Estate Income Trust as BREIT conceded that limits it placed on investor withdrawals in November and December had not stopped an exodus from its $69B fund.

In an interview with the Financial Times on Thursday after BREIT reported Q4 results showing a 42% plunge in earnings, Jon Gray, president of Blackstone, said it was too early to say whether redemption requests from fund investors had slowed in the wake of its withdrawal limits.

“We have a backlog from November and December,” Gray said.

As a non-traded REIT, BREIT has thresholds on how much money investors can take out of its fund in order to avoid forced selling of assets. In a Dec. 1 letter to investors, BREIT said redemption requests had exceeded its 2% of net asset value monthly limit and its 5% quarterly threshold.

Blackstone allowed investors to withdraw $1.3B in November, or just 43% of the redemption requests it received; the firm limited December withdrawals to 0.3% of the fund’s net assets.

Starwood (SREIT) and KKR’s KREST fund, both non-traded REITs, also have limited fund withdrawals as retail investors—wealthy individuals, primarily from overseas—have bombarded the funds with redemption requests.

Noting that newer funds don’t allow monthly withdrawals, Gray suggested that it might be time to rethink the structure of non-traded REITs that offer liquidity for illiquid CRE assets.

“I think there will be an evolution of private wealth products,” the Blackstone president told FT.

UC’s $500M infusion will have the same terms as the $4B deal it struck with BREIT at the beginning of the year: a six-year minimum hold, the acquisition of BREIT Class I common shares and a contribution from BREIT to guarantee a minimum 11.25% annual return, according to a statement issued by BREIT.

BREIT committed $1B to guarantee the annual return in the original $4B deal; it will contribute another $125M to support the $500M tranche.

UC expanded its investment despite receiving a letter after the $4B deal was announced from unions representing 110,000 workers in the University of California system—the largest in the nation—demanding that UC divest its holdings in Blackstone.

According to the letter, the deal between UC and BREIT will worsen the shortage of affordable housing for students and employees.

“The University of California’s current housing investment strategy, combined with the bolstering of Blackstone’s BREIT will only further deepen a hostile housing market for millions across California,” said the letter, addressed to Jagdeep Bachher, chief investment officer for UC’s $152B pension and endowments funds.

In his announcement of the $4B investment, Bachher called UC’s decade-long partnership with Blackstone—the university invested $2B in the real estate giant prior to this month’s commitments—as “a long-term strategic venture” with “a strong, trusted partner.”

Last year, Blackstone purchased the largest student-housing landlord, American Campus Communities, in an acquisition worth nearly $13B. UC is in the midst of an effort to increase its student housing footprint at several campuses where enrollments have exceeded the available housing units.