The University of California is putting $4 billion into a Blackstone Inc. real-estate vehicle aimed at individual investors, providing crucial ballast for a fund that has been beset by a wave of redemptions.
The investment will come in the form of common equity in Blackstone Real Estate Income Trust Inc., known as BREIT, and will be subject to the same fees and terms the vehicle’s other shareholders get, Blackstone executives said. The typical BREIT investor has the option to sell shares monthly, but University of California manager UC Investments will effectively be committing to hold its shares for six years.
As part of the agreement, UC Investments will put its BREIT shares into a strategic venture to which Blackstone will contribute $1 billion of BREIT shares that it already owns. The venture will have an 11.25% hurdle rate, meaning that if BREIT’s net annualized return exceeds that rate, Blackstone will get an extra 5% incentive fee. If the vehicle’s performance falls short of the 11.25% rate, Blackstone will make up the difference.
BREIT has posted 12.7% net annualized returns since inception.
Blackstone is hoping the announcement will help set to rest doubts about the stability of BREIT, a $68 billion nontraded real-estate investment trust that has been one of its biggest growth engines in recent years. It has helped the private-equity firm attract a new class of investors who might not be wealthy enough to invest in its traditional funds but want access to private assets.
Shares of Blackstone have fallen about 19% since BREIT said Dec. 1 that it was limiting withdrawals because redemption requests had exceeded certain internal thresholds, wiping out some $20 billion market value.
Blackstone has said the wave of redemption requests kicked off in Asia after the Chinese stock market fell. Other investors have since followed suit, propelled by a concern that BREIT will have to mark down its portfolio following interest-rate increases by the Federal Reserve and big declines in the market values of comparable public REITs.
The firm said that redemption requests as a percentage of BREIT’s total capital were 3% in the U.S. and 5% overall in December.
Blackstone President Jonathan Gray said the investment came about as a result of a TV interview he did about BREIT on Dec. 8. Mr. Gray’s comments prompted UC Chief Investment Officer Jagdeep Bachher, who has a longstanding relationship with the firm, to contact Blackstone to ask if there was a way to work together. Mr. Gray said Mr. Bachher and his team did a significant amount of due diligence before committing to the deal, crisscrossing the country to meet with the heads of all of BREIT’s portfolio companies.
“We think it’s a massive affirmation of the quality of the portfolio,” Mr. Gray said. “Unlike others who had been focused on short-term flows, they looked under the hood.”
He said the deal gives UC Investments access to the kind of real estate they want to own—multifamily rental housing, including student housing, in the fast-growing Sunbelt region and warehouses used in e-commerce—in one fell swoop.
Blackstone executives said the firm will profit on its $1 billion investment if BREIT’s net annualized return exceeds 8.7%, thanks to management and incentive fees. After the UC Investments deal, BREIT will have about $14 billion in liquidity.
This story has been published from a wire agency feed without modifications to the text