University of California To Invest In Blackstone Gets $4 Billion For Real Estate Fund!
Blackstone Inc.’s real estate vehicle targeted at individual investors will get $4 billion from the University of California, giving it much-needed stability after a recent wave of redemptions.
According to Blackstone executives, the investment will take the form of ordinary shares in BREIT, or Blackstone Real Estate Income Trust Inc., and will be subject to the exact fees and conditions granted to BREIT’s other shareholders. However, the University of California manager UC Investments will essentially be committing to hold its shares for six years, when the average BREIT investor has the flexibility to sell shares monthly.
Following the agreement, UC Investments will invest its BREIT shares in a strategic project to which Blackstone will contribute its existing $1 billion holding of BREIT shares. Blackstone will get an additional 5% incentive fee if BREIT’s net annualized return is higher than the venture’s 11.25% hurdle rate. Blackstone will make up any performance shortfalls if the vehicle’s output falls below the 11.25% threshold.
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Since its establishment, BREIT has produced net annualized returns of 12.7%.
With BREIT, a $68 billion non-traded real estate investment trust that has recently been one of Blackstone’s key growth drivers, Blackstone is hoping that the announcement would help ease concerns about the company’s health. It has aided the private equity company in luring a new class of investors who might not be well-off enough to invest in its typical funds but desire access to personal assets.
Since BREIT announced on December 1 that it was restricting withdrawals because redemption requests had exceeded specific internal levels, the market value of Blackstone’s shares has decreased by nearly 19%, wiping away about $20 billion.
According to Blackstone, the flood of redemption demands began in Asia following the decline in the Chinese stock market. Since then, other investors have done the same, spurred on by worries that BREIT may have to mark down its portfolio due to Federal Reserve interest rate increases and significant drops in the market prices of comparable public REITs.
According to the company, redemption requests as a percentage of BREIT’s total capital were 5% globally and 3% in the United States in December.
Blackstone President Jonathan Gray claimed that a television appearance he gave on December 8 about BREIT was the catalyst for the transaction. In response to Mr. Gray’s remarks, UC Chief Investment Officer Jagdeep Bachher,
who has a long-standing connection to the company, to get in touch with Blackstone and inquire about a potential collaboration. Before agreeing to the acquisition, Mr. Gray claimed that Mr. Bachher and his team undertook a large amount of due diligence, traveling across the nation to speak with the leaders of every portfolio company of BREIT.
According to Mr. Gray, “We think it’s a significant endorsement of the quality of the portfolio. “They peered under the hood, unlike others concentrating on short-term flows.”
In the rapidly expanding Sunbelt region, he makes all multifamily rental housing, including student accommodation and warehouses utilized in e-commerce, available to UC Investments through the agreement.
Blackstone officials said that if BREIT’s net annualized return reaches 8.7%, management and incentive fees will allow the company to recoup its $1 billion investment. UC Investments’ purchase will leave BREIT with around $14 billion in liquidity.