In a feature essay published last month about the aftermath of last fall’s academic workers strike, I brushed aside the implications of a $4.5 billion investment that University of California Investments, or UC Investments, recently made in Blackstone. The piece itself already seemed to bite off more than it could chew — as evidenced by its hefty 2,600 words — and I thought the full Blackstone story best saved for another day.
Today is that day.
I contemplated writing a piece that would straightforwardly lay out the details of the investment and what that would entail for Berkeley as a community, hoping to keep it as objective as possible. However, any notion of neutrality here would be an illusion. As a student of Berkeley’s political economy department, I have certain beliefs: I believe that a roof over one’s head is a basic human right. I believe that everybody should be paid a living wage. Perhaps most fundamentally, I believe that people are more important than businesses — although the latter may be necessary for the wellbeing of the former, that relationship becomes moot if the existence of the latter necessitates the suffering of the former.
These are all, I assume, fairly uncontroversial stances. Nevertheless, these premises underlie the way this piece is written, and that is something any critical reader should keep in mind.
On Jan. 3, 2023, the university invested $4 billion in the Blackstone Real Estate Income Trust, Inc., or BREIT. Three weeks later, it announced the investment of an additional $500 million, bringing the total investment up to a whopping $4.5 billion.
Blackstone is, in the firm’s own words, “the world’s largest alternative asset manager.” That means that they work to “serve institutional and individual investors by building strong businesses that deliver lasting value.”
In plain English, Blackstone is an investment firm — asset management is simply the practice of pooling resources from many people in order to grow them more quickly. Blackstone manages $975 billion in alternative assets, which exist in opposition to conventional assets such as stocks and bonds, and which include things like venture capital, art and antiques, hedge funds and real estate. BREIT is a real estate trust investment firm owned by Blackstone Inc. — that is to say, albeit legally being a separate company, it is essentially Blackstone’s real estate investment arm.
Blackstone manages $975 billion in alternative assets, which exist in opposition to conventional assets such as stocks and bonds, and which include things like venture capital, art and antiques, hedge funds and real estate.
Therefore, UC Investments’ $4.5 billion investment in BREIT means that Blackstone will use the money in real estate investment that will hopefully yield higher returns than the university could otherwise obtain. While the size of this sum is newsworthy, it is also pertinent to note that this investment is nothing new: The university has been a Blackstone investor for more than 15 years.
What does the investment mean for housing markets?
Investing in firms such as Blackstone is, perhaps, not inherently bad. Real estate is profitable — if the amount we pay in rent is any indication — and the university should grow its money with the financial instruments available, especially if it uses that wealth to further its goals of education and public service.
However, concerns arise when one considers Blackstone’s alleged practices in the housing market. In 2019, the United Nations accused Blackstone of engaging in predatory practices in housing markets, including artificially inflating rents, executing “aggressive evictions” and intentionally shrinking the supply of affordable housing in order to further drive up prices.
In response, Blackstone expressed that it was “surprised and disappointed” by these allegations. However, in a promotional pamphlet for BREIT, the firm blatantly cites growing market rents as one of “today’s performance drivers” and limited housing supply as one of their “medium-term tailwinds,” touting 10% yearly rent hikes and a decrease in new housing supply of up to 40% as things to be celebrated or even company achievements.
In places such as Berkeley, where the university claims to be battling the housing shortage in good faith and as a good neighbor, investing in a firm that sees housing shortages as good for business seems counterintuitive. Although the ills of American housing markets run deep and, arguably, run deeper than companies such as Blackstone, they are certainly exacerbated by actively predatory business practices. For the university to claim that it is committed to solving the housing crisis while putting billions of dollars into a firm that seems to worsen it seems disingenuous at best.
For the university to claim that it is committed to solving the housing crisis while putting billions of dollars into a firm that seems to worsen it seems disingenuous at best.
Owing to these concerns, the Council of UC Faculty Associations, among other unions, has demanded that the university divest from its $4.5 billion in Blackstone holdings, along with an additional $2 billion that it had previously invested in the firm. Last week, community members once again called for divestment at a rally for AFSCME 3299, a union on campus protecting service, technical patient care and skilled crafts workers.
What does the investment mean for Blackstone?
In researching the Blackstone investment, one also comes across a second interesting point — that, at the time of the university’s investment, BREIT appeared to be struggling.
In November last year, BREIT investors began asking to pull their money out of the fund. When withdrawals totaled more than 5% of BREIT’s net asset value, the fund began blocking these redemption requests. This persisted into January, in which investors attempted to withdraw $5.3 billion from the fund. Of this amount, BREIT approved $1.3 billion.
It was against this backdrop that the university put $4 billion into BREIT, with the firm promising to use $1 billion of its own money to ensure that the university would turn a profit.
Blackstone’s Head of Real Estate Americas, Nadeem Meghji, described this inflow of capital as “changing the narrative” around BREIT — and, indeed, things seemed to improve in February, with withdrawals slowing as investor confidence seemed to recover slightly.
However, following the collapse of Silicon Valley Bank last month, withdrawal requests have once again surged, growing by 15% to $4.5 billion. BREIT found itself having to restrict withdrawals for the fifth consecutive month. Having to stop investors from pulling their funds is certainly a bad omen for an investment firm, raising possible questions about how wise it was for the University to sink $4 billion into BREIT — and then $500 million more.
It bears restating here that the university made this investment at the same time as it claimed to struggle to fund better contracts for striking graduate student workers. While they have explained that the use of funds is restricted by certain rules, the question remains: Who decides that the university has money to gamble on Blackstone, hoping that the investment will pay for pensions, but that it doesn’t have the resources to pay its graduate students enough to escape rent burden?
What has the university said about all this?
Nonetheless, at the time of the investment, Chief Investment Officer of UC Investments, Jagdeep Singh Bachher, stated in a press release that he expected this to be a good investment in the spirit of “the UC Investments Way.”
When I reached out to the UC Office of the President some weeks ago asking about Blackstone’s alleged predatory practices, spokesperson Ryan King said in an email, “On your questions related to Blackstone, we have reached out to the UC Investments office, which is an independent entity that reports to the University of California Board of Regents. They do not have a comment to provide at this time.”