{"id":26149,"date":"2023-04-25T12:34:30","date_gmt":"2023-04-25T19:34:30","guid":{"rendered":"https:\/\/occupysf.net\/?p=26149"},"modified":"2023-04-25T12:36:34","modified_gmt":"2023-04-25T19:36:34","slug":"the-university-of-california-bails-out-eviction-happy-private-equity","status":"publish","type":"post","link":"https:\/\/occupysf.net\/index.php\/2023\/04\/25\/the-university-of-california-bails-out-eviction-happy-private-equity\/","title":{"rendered":"The University of California Bails Out Eviction-Happy Private Equity"},"content":{"rendered":"\n

The University of California claims part of its mission is to serve society and provide public service for California and the nation. But as today\u2019s featured story<\/a> reveals, that mission didn\u2019t stop the university\u2019s board of regents from delivering a $4.5 billion bailout to a giant Wall Street real estate fund that\u2019s planning on ramping up rent increases and evictions amid a housing crisis already wreaking havoc on the public university\u2019s students and staff.<\/p>\n\n\n\n

The Lever <\/em>holds the powerful accountable through reader-supported investigative <\/p>\n\n\n\n

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By Matthew Cunningham-Cook<\/em><\/a><\/p>\n\n\n\n

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Blackstone UC Investment (AP Photo\/Mark Lennihan)<\/p>\n\n\n\n

April 24, 2023 <\/p>\n\n\n\n

The Lever<\/strong> (editor@levernews.com)<\/p>\n\n\n\n

As the world\u2019s largest private equity firm faces potential losses from a cloudy<\/a> real estate market, its executives blocked jittery investors from withdrawing their money from one of its real estate funds, while insisting that rent increases and evictions will bolster returns.<\/p>\n\n\n\n

Now, the Blackstone Group\u2019s real estate investment trust has received a multibillion-dollar bailout from a source whose employees and students are already suffering through the housing crisis: California\u2019s public university system.<\/p>\n\n\n\n

Just months after Blackstone\u2019s real estate investment trust purchased America\u2019s largest owner of private student housing, the same trust received a $4.5 billion infusion from the University of California\u2019s Board of regents, two of whom have close ties to the company. The investment rewards the financial firm only a few years after the company and its executives spent $5.6 million to kill California ballot initiatives that would have expanded rent control in the state.<\/p>\n\n\n\n

Blackstone, a firm that\u2019s valued at $111 billion<\/a> and manages $991 billion<\/a> in assets, also faces broader headwinds in its real estate sector. The profits that the firm distributes to shareholders plunged 36 percent last year, driven<\/a> by real estate losses.<\/p>\n\n\n\n

Effectively, University of California (UC) is funneling cash into privatized student housing and corporate landlords \u2014 doubling down on a controversial<\/a> investment strategy that comes with a massive layer of fees and Wall Street profits \u2014 instead of doing its part to address a growing housing crisis, one that affects its students and employees.<\/p>\n\n\n\n

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In 2021, five percent of UC students, or more than 14,000, experienced<\/a> homelessness, while the university\u2019s unions report that many of their mostly blue-collar members simply cannot make ends meet due to California\u2019s spiraling cost of rental housing.<\/p>\n\n\n\n

The latest episode revolves around the Blackstone Real Estate Income Trust, or BREIT. In August 2022, BREIT purchased<\/a> 69 percent of American Campus Communities (ACC), the country\u2019s largest student housing company, in a $12.8 billion deal. ACC\u2019s business model is built around rent revenues; in January 2022 the company\u2019s CEO boasted<\/a> that it was \u201cexperiencing the most substantial fundamental tailwinds we’ve seen in many years\u201d thanks in part to soaring rents.<\/p>\n\n\n\n

ACC has apartments at the University of California, Berkeley, and the University of California, Irvine.<\/p>\n\n\n\n

Five months after this acquisition, the UC Regents pumped $4.5 billion into BREIT. Around the same time, Blackstone spent<\/a> more than $150,000 in the final quarter of 2022 on lobbying UC for more investment dollars, doubling the amount it spent the previous quarter.<\/p>\n\n\n\n

In December, Nadeem Meghji, Blackstone\u2019s head of real estate for the Americas, told CNBC in December that UC\u2019s unprecedented bailout of BREIT \u201cchanged the narrative<\/a>\u201d around the fund.<\/p>\n\n\n\n

In December, Blackstone began blocking redemptions to investors, after it received an influx<\/a> of redemption requests. But that didn\u2019t stop Blackstone from distributing to itself more than $200 million in management fees in the fourth quarter of 2022, a Lever<\/em> review of Securities and Exchange Commission (SEC) filings<\/a> show. Between management and performance fees, Blackstone extracted more than $1.5 billion in fees from the $50 billion<\/a> fund in 2022.<\/p>\n\n\n\n

Blackstone CEO Stephen Schwarzman earned $1.3 billion<\/a> in 2022 and has a net worth of $30.7 billion, according to Bloomberg, and is a major donor to Republican candidates.<\/p>\n\n\n\n

Now, in a nearly unprecedented coordinated intervention, the university\u2019s labor unions \u2014 representing 110,000 workers \u2014 have called on UC to divest itself not just from the university\u2019s holdings in the Blackstone real estate fund, but all of the university\u2019s $6.5 billion<\/a> invested in Blackstone holdings.<\/p>\n\n\n\n

\u201cEssentially UC is investing in a corporation that further drives UC\u2019s own workers\u2019 housing insecurity,\u201d said Kathryn Lybarger, the President of AFSCME Local 3299, which represents blue collar and health care workers at the University of California. \u201cThe bottom line is that people\u2019s housing should not be a basis for making a profit, especially when it\u2019s a public institution like UC. We\u2019re demanding they divest and it\u2019s on the scale of divesting from South Africa in the \u201880s. We\u2019re talking about housing as a human right, not as an investing opportunity.\u201d<\/p>\n\n\n\n

Blackstone\u2019s Housing Play<\/h3>\n\n\n\n

Real estate investment trusts are pools of investor-backed cash that purchase real estate. While pension funds routinely invest in both REITs and private equity real estate, it is extremely uncommon to have a pension effectively do a bailout of a fund facing massive redemption requests.<\/p>\n\n\n\n

Blackstone\u2019s BREIT differs substantially from the $1.3 trillion real estate investment trust, or REIT, market. Nearly all REITs are publicly traded, which means that investors can cash out their money at will. This is not the case with BREIT, which allows Blackstone to suspend redemptions.<\/p>\n\n\n\n

In response to questions from The Lever<\/em>, Blackstone spokesman Jeffrey Kauth noted in an email that \u201cBREIT is not a mutual fund and has never gated. It is a semi-liquid product and is working exactly as planned.\u201d \u201cGating\u201d refers to a practice by hedge funds and private equity where redemptions are entirely blocked, as opposed to just partially blocked, like with BREIT.<\/p>\n\n\n\n

Blackstone is the largest private landlord in the country, owning<\/a> 300,000 units across the United States. In California alone, Blackstone and its affiliates, including BREIT, own at least 9,000 housing units, including concentrations in San Diego, Los Angeles, Sacramento, and the Bay Area, according to research done by the Private Equity Stakeholder Project.<\/p>\n\n\n\n

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Those units tend to be located in lower-income census tracts, where on average residents make roughly 25 percent less than the state\u2019s median household income. Over the past few years, BREIT has also made a play into mobile home parks, acquiring nearly 6,000 units are in the San Diego area, where Blackstone has been routinely<\/a> jacking up listed rents by 40 percent or more.<\/p>\n\n\n\n

Escalating housing costs are integral to Blackstone\u2019s business strategy. \u201cOur major concern with Blackstone is that this is a company whose model for making money for investors is to buy up rental properties and raise the rent,\u201d said Lybarger at AFSCME.<\/p>\n\n\n\n

Blackstone spent more than $5.6 million<\/a> opposing a 2018 ballot initiative that would have allowed California cities to implement new rent control measures.<\/p>\n\n\n\n

In 2019, the UN accused<\/a> Blackstone of \u201cwreaking havoc\u201d in the housing market by its aggressive pursuit of evictions and higher rents. Some tenants have successfully fought back as it seeks to expand its presence in the housing market, however. In January, tenants at the StuyTown complex in New York City successfully fought an effort to raise rents, and in San Diego, Blackstone tenants have formed<\/a> a union.<\/p>\n\n\n\n

\u201cWe believe we have the most favorable resident policies among any large landlord in the U.S., including not making a single non-payment eviction for over two years during COVID,\u201d noted Kauth in his email.\u201cWe operate in accordance with California\u2019s rent stabilization laws and are investing $100 million to make these communities better places to live.\u201d<\/p>\n\n\n\n

But some BREIT tenants say that if anything, the trust\u2019s massive foray into housing has been anything but beneficial.<\/p>\n\n\n\n

One tenant, Michael McBride, says that since BREIT purchased his apartment complex in Chula Vista outside of San Diego a couple of years ago, basic maintenance has fallen by the wayside. It took \u201cat least\u201d a month for BREIT to fix the heat in his apartment after he had complained about it in winter.<\/p>\n\n\n\n

\u201cI just got heat inside my apartment,\u201d he said. \u201cNow my front room thermostat is not working, and we\u2019re having water issues \u2014 it smells like bleach. Something needs to be done.\u201d BREIT currently owns 66 apartment buildings in San Diego County.<\/p>\n\n\n\n

BREIT\u2019s approach has lately faced turbulence. Because the fund is substantially indebted \u2013 it carries $90 billion in debt on $140 billion in total assets \u2014 even small downturns like the recent economic decline put the fund in jeopardy, since both gains and losses are magnified because of high leverage.<\/p>\n\n\n\n

What\u2019s more, BREIT has a small but significant portion of its holdings in the office and retail sector, which have been battered in the post-pandemic economy. Earlier this month<\/a>, BREIT sold two office towers in Orange County, California, for 36 percent less than it paid for them nine years ago.<\/p>\n\n\n\n

Multifamily housing like that owned by BREIT has also faced headwinds as the Federal Reserve has repeatedly raised interest rates, which make it more difficult for potential buyers \u2014 typically other real estate investment trusts or private equity firms \u2014 to purchase housing. Sales of apartment buildings fell by two-thirds in the most recent quarter, according<\/a> to data from the CoStar Group.<\/p>\n\n\n\n

Such upheaval has led many BREIT investors to get cold feet. In March, BREIT received $4.5 billion in redemption requests, but only fulfilled $666 million of them.<\/p>\n\n\n\n

But now, UC has come to the rescue. In January, the university announced<\/a> it was investing $4.5 billion in the struggling fund \u2014 which in effect allows it to start refunding other investors\u2019 money.<\/p>\n\n\n\n

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\u201cI Have To Make Some Capitalistic Decisions\u201d<\/h3>\n\n\n\n

UC\u2019s pension system is fairly unique in that workers have no power over how investment decisions are made. All decisions are made by the regents, which are appointed by the California governor for 12-year terms.<\/p>\n\n\n\n

One of the main decision-makers behind the plan to pump billions of UC dollars into Blackstone was Richard Sherman, chair of the UC Investment Committee, who has strong connections to the investment firm. On January 3, Sherman announced<\/a> in a Blackstone press release, \u201cThis type of large, opportunistic investment effectively leverages the UC\u2019s more than $150 billion portfolio to benefit the 600,000 students, faculty, staff, and pensioners from our 10 campuses and six academic health centers.\u201d<\/p>\n\n\n\n

Sherman, who heads up music mogul David Geffen\u2019s investment office, collaborated with Blackstone on the 2012 buyout<\/a> of music publisher EMI. What\u2019s more, the late Blackstone co-founder Pete Peterson purchased<\/a> his New York penthouse from Geffen in 2007.<\/p>\n\n\n\n

An additional member of the eleven-person Investment Committee, Mark Robinson, also has ties to Blackstone. Robinson is a partner at investment banking firm Centerview Partners, which advised<\/a> Blackstone on a $2.2 billion<\/a> acquisition in 2021.<\/p>\n\n\n\n

On behalf of the Regents, the investment was launched by Jagdeep Singh Bachher, UC\u2019s Chief Investment Officer \u2014 who has been accused<\/a> of making investments in response to pressure from individual Regents with conflicts of interest in the past. In 2018, he invested an unprecedented $240 million into a fund meant for high-net-worth individuals headed by the former chair of the Regents\u2019 Investment Committee, Paul Wachter.<\/p>\n\n\n\n

👉<\/p>\n\n\n\n

According to Kauth, the Blackstone spokesperson, \u201cThe UC Investments team saw [Blackstone President] Jon Gray speaking on CNBC in December and reached out to Blackstone to see if they could be helpful by deploying capital in a way that would create a win-win. Following the initial call, UC Investments did extensive diligence on the portfolio and as a result of that process, decided to invest $4 billion in the fund. To suggest that the investment was the result of anything other than robust diligence is a complete mischaracterization.\u201d<\/p>\n\n\n\n

Kauth added, \u201cBlackstone has never had a corporate PAC or made corporate donations to political candidates. The firm has always been bipartisan, and all of our executives\u2019 political donations are strictly personal.\u201d Schwarzman pumped<\/a> $20 million into the SuperPACs of Congressional Republicans in the 2022 election and was a major adviser<\/a> to Donald Trump.<\/p>\n\n\n\n

In response to uproar over UC\u2019s  investment in Blackstone, Baccher played it off as a zero-sum game of capitalism.<\/p>\n\n\n\n

\u201cThe job of this team day in and day out is to pick assets that are going to be accretive to future generations and future retirees,\u201d Bachher said<\/a> at a Regents meeting in March. \u201cAnd to do that… I have to make some capitalistic decisions. And that decision around Blackstone… was purely an investment decision for the benefit of the UC… and to help the needs of our pensioners and our endowment.\u201d<\/p>\n\n\n\n

But a Lever review of UC\u2019s performance under Bachher\u2019s leadership shows that his \u201ccapitalistic\u201c investment decisions have resulted in the university\u2019s pension and endowment funds massively trailing a plain vanilla index fund of stocks and bonds.<\/p>\n\n\n\n

Had the pension fund pursued a lower-risk index fund strategy for the last decade \u2014 the kind advocated by Warren Buffett \u2014 it would now boast $32 billion more in its coffers, or 40 percent more than its current value. Likewise, the university\u2019s endowment fund would have an additional $6.4 billion in its coffers, or 36 percent increase of its current value.<\/p>\n\n\n\n

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In response to a request for comment from The Lever<\/em>, the university spokesperson stated that a substantial portion of the UC\u2019s investment approach was in index funds. They did not answer questions about poor fund performance under Bachher\u2019s leadership, and Bachher declined an interview with The Lever.<\/em><\/p>\n\n\n\n

According to Kauth, \u201cUC Investments\u2019 recent commitment to BREIT builds upon its 15-year partnership with Blackstone. Before its recent investment in BREIT, UC Investments had already invested $2 billion in Blackstone funds for more than a decade and has a deep working relationship across the entire firm.\u201d<\/p>\n\n\n\n

\u201cA Meaningful Increase In Economic Occupancy\u201d<\/h3>\n\n\n\n

While Blackstone likes to emphasize that it halted all non-payment evictions during the height of the pandemic, that policy is no longer in place. UC\u2019s bailout came just as Blackstone began ramping up evictions.<\/p>\n\n\n\n

The Financial Times<\/em> reported<\/a> at the end of January that Blackstone\u2019s global real estate head had said that the firm was \u201cseeing a meaningful increase in economic occupancy as we move past what were voluntary eviction restrictions that had been in place for the last couple of years,\u201d acknowledging that the removal of eviction restrictions has allowed Blackstone to improve its cash flow.<\/p>\n\n\n\n

The article also stated that consultants working with Blackstone had reached out to local elected officials in California to say that Blackstone planned on restarting eviction proceedings that had been dormant during the COVID-19 pandemic.<\/p>\n\n\n\n

Research from the Private Equity Stakeholder Project in March found<\/a> that Blackstone launched eviction proceedings against a tenant in Orange County, Florida, for being one month late on rent.<\/p>\n\n\n\n

Additionally, Blackstone declared in December reporting<\/a> from SeekingAlpha that what they were charging for rents could go 20 percent higher in the multifamily and industrial sectors if they charged what they considered to be \u201cmarket rates.\u201d<\/p>\n\n\n\n

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Blackstone <\/strong>BREIT <\/em>showcasing<\/em><\/a> its intention to raise rents<\/em><\/p>\n\n\n\n

An estimated 2.5 million Californians are cost burdened in paying their rent, meaning that they spend more than 30 percent of their income on housing, according<\/a> to a report produced at the end of February by the California Legislative Analyst\u2019s Office.<\/p>\n","protected":false},"excerpt":{"rendered":"

The University of California claims part of its mission is to serve society and provide public service for California and the nation. But as today\u2019s featured story reveals, that mission didn\u2019t stop the university\u2019s board of regents from delivering a $4.5 billion bailout to a giant Wall Street real estate fund that\u2019s… Continue reading → <\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[487,486],"_links":{"self":[{"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/posts\/26149"}],"collection":[{"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/comments?post=26149"}],"version-history":[{"count":2,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/posts\/26149\/revisions"}],"predecessor-version":[{"id":26152,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/posts\/26149\/revisions\/26152"}],"wp:attachment":[{"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/media?parent=26149"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/categories?post=26149"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/occupysf.net\/index.php\/wp-json\/wp\/v2\/tags?post=26149"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}