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- The University of California is investing $4 billion with Blackstone to acquire rentals and student housing.
- The global asset manager set a benchmark annualized return rate of 11.25% for the funds.
- UC’s investment could be a case study for other cash-flush higher ed institutions.
The University of California is investing $4 billion in a real estate fund managed by private equity firm Blackstone to acquire rental and student housing, which both entities see as bright spots in the cooling US real estate market.
The investment comes at a crucial time for Blackstone’s Real Estate Income Trust Inc. fund — also known as BREIT— a $68 billion property investment vehicle. The fund came under fire in December 2022 when Blackstone limited withdrawals after the finance giant received redemption requests that exceeded the company’s liquidity limits.
While investors have the option to sell their shares of the fund on a monthly basis, the University of California has committed to holding its shares for at least six years, according to a joint statement issued by the parties.
“We consider BREIT to be one of the best positioned, large-scale real estate portfolios in the US, managed by one of the world’s top real estate investors,” said Jagdeep Singh Bachher, the University of California’s chief investment officer. “This is an opportunity that comes only through strong, trusted partnership.”
Investor interest in student housing developments skyrocketed during the pandemic. According to data from commercial real estate firm CBRE, the sector saw more than $10 billion in sales in 2021 — the most recent year of available data — which is more than twice as much as the asset class witnessed in 2020.
However, California’s multifamily market faces an uncertain future as rising interest rates and slowing migration patterns present challenges for homebuilders in the state, according to an economic outlook from the University of Southern California’s Lusk Center for Real Estate.
According to data from Green Street, a commercial real estate analytics firm, commercial property values in the US declined by 13% year-over-year in November 2022 as high interest rates and the popularity of remote work drove investors away.
Since its inception six years ago, BREIT has posted an annualized net return of nearly 13%, according to Blackstone. About 70% of the fund’s portfolio is located in sunbelt markets such as Nevada, Texas, and Florida. More than half of BREIT’s portfolio is split between rental and industrial properties as well.
The University of California’s investment could become a model for other universities with large endowment funds — typically in the billions of dollars — that want to invest in real estate investment trusts or commercial real estate assets. BREIT’s portfolio includes assets in popular college towns such as Fort Collins, Colorado, where Colorado State University is located, and Baton Rouge, Louisiana, which is home to Louisiana State University, according to the fund’s website.
As part of the agreement, Blackstone will also contribute more than $1 billion to support a 11.25% annualized return on the university’s investment. If returns exceed that amount, Blackstone will be entitled to a 5% incentive fee.
Stephen Schwarzman, CEO and Co-Founder of Blackstone, added that the investment comes at an “opportune deployment period for all our investors.”