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The University of California boosts Blackstone REIT with $4B investment

UC Investments casts vote of confidence after fund limited withdrawals

Blackstone's Jonathan Gray, UC Investments' Jagdeep Singh Bachher (Blackstone, L'attitude, Getty)
Blackstone's Jonathan Gray, UC Investments' Jagdeep Singh Bachher (Blackstone, L'attitude, Getty)

After a trying month for Blackstone’s real estate investment trust, the University of California is stepping in to prop up the fund.

UC Investments pledged $4 billion towards the Blackstone Real Estate Income Trust in the form of common equity, the Wall Street Journal reported. While the investment is subject to similar fees and terms as other shareholders, the university system will effectively be committed to its shares for six years.

UC Investments’ BREIT shares will be put into a venture that will include a $1 billion contribution from Blackstone. The venture includes an 11.25 percent hurdle rate; if BREIT’s net annualized return exceeds that — it boasts a 12.7 percent return rate since inception — Blackstone gets a 5 percent incentive fee. Otherwise, it must make up the difference.

The investment is a vote of confidence in a fund recently put through the wringer.

BREIT last month restricted investor withdrawals, sparking fears about the $69 billion real estate fund. Blackstone limited redemptions after withdrawal demand exceeded 2 percent of the net asset value monthly limit and 5 percent of the quarterly threshold.

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The turmoil stemmed from Asian investors requesting withdrawals over the summer when their own property markets soured, the Financial Times reported. Blackstone chairman Stephen Schwarzman defended the beleaguered fund, calling it some of the company’s “best work” and claiming fears over the fund were “a bit baffling” at a recent industry conference.

The REIT has stood above its competitors. In the first nine months of 2022, BREIT recorded a 9.3 percent net return, much better than publicly traded REITs. But the redemption withdrawals harmed Blackstone as a whole: roughly $20 billion in market value for the company has been wiped from the stock market since the redemption withdrawal revelation.

Rising interest rates have made acquisitions more challenging, prompting BREIT to shore its cash reserves. Once the investment from the University of California closes, the fund will have $14 billion in liquidity.

To profit on Blackstone’s $1 billion investment into the venture, Blackstone executives said the fund will need to post net annualized returns exceeding 8.7 percent.

— Holden Walter-Warner

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Blackstone GroupREITS