University of California Endowment and Pension Money to Invest $4 Billion in Blackstone Real Estate Income Trust
Posted on 01/03/2023
The Office of the Chief Investment Officer of the Regents of the University of California (UC Investments) and Blackstone (NYSE: BX) announced a long-term strategic venture in which UC Investments will invest US$ 4 billion in Blackstone Real Estate Income Trust, Inc. (“BREIT”) Class I common shares, the largest existing share class. Blackstone will then contribute $1 billion of its current BREIT holdings as part of a strategic venture with UC Investments. More than 200,000 investors are investing in BREIT, according to Blackstone.
University of California Regent Richard Sherman, Chair of the Investments Committee, said in a press release, “This type of large, opportunistic investment effectively leverages the UC’s more than $150 billion portfolio to benefit the 600,000 students, faculty, staff, and pensioners from our 10 campuses and six academic health centers.”
Jagdeep Singh Bachher, the University of California’s Chief Investment Officer, said in a press release, “In the current environment, investors can benefit from stable cash-flowing investments that can grow with high global inflation. We consider BREIT to be one of the best positioned, large-scale real estate portfolios in the U.S., managed by one of the world’s top real estate investors. This is an opportunity that comes only through strong, trusted partnership. This investment should provide UC Investments’ clients with a well-diversified real estate portfolio and exemplifies the culture of The UC Investments Way.”
UC Investments has already invested $2 billion in Blackstone funds for more than a decade. UC Investments’ co-heads of real estate, Senior Managing Director Satish Swamy and Chief Operating Officer Arthur R. Guimarães, will oversee the Blackstone relationship.
This strategic venture is being formed through a two-part transaction whereby UC Investments will acquire US$ 4 billion of BREIT Class I common shares at the January 1, 2023 public offering price with fees and terms consistent with existing BREIT shareholders. UC Investments will have the option to redeem its investment ratably over two years after January 2028 (an effective 6-year hold). Outside of the long-term nature of this investment, the Class I common shares to be acquired by UC Investments will be no different from any other outstanding Class I common shares.
In addition, Blackstone and UC Investments have entered into a separate strategic agreement that provides for a waterfall structure with respect to the total return to be received by UC Investments on its investment in the Class I common shares. As part of the agreement, Blackstone will contribute US$ 1 billion of its current holdings in BREIT to support an 11.25% minimum annualized net return for UC Investments over the effective 6-year hold period. In exchange, Blackstone will be entitled to receive an incremental 5% cash promote payment from UC Investments on any returns received in excess of the specified minimum, in addition to the existing management and incentive fees borne by all holders of Class I shares of BREIT.
BREIT Class I shares have generated a 12.7% annualized net return since inception six years ago.1 As long as BREIT produces in excess of an 8.7% annualized net return, Blackstone is expected to achieve incremental profit above what it otherwise would earn on its contributed $1.0 billion of capital.2 This is due to the impact of management and incentive fees on the $4 billion of new capital. BREIT Class I shares have also generated a 8.4% net return year to date.1 This transaction does not change BREIT’s recently communicated repurchase guidance for Q1 2023.
Simpson Thacher & Bartlett LLP is acting as BREIT’s legal counsel and Goodwin Procter LLP is acting as UC Investments’ legal counsel.
Keywords: Blackstone Group LP. Office of the Chief Investment Officer of the Regents University of California (UC California Investment Office).