With A $2 Billion Real Estate Plan, The University of California Implements The BREIT Deal.

The University of California's investing office is looking to invest more money in real estate, this time with a local focus after recently striking a $4.5 billion deal with a sizable Blackstone Inc. property fund.

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In order to purchase or finance facilities near its ten campuses, including dormitories, faculty housing, classrooms, and lab space, the university is asking to allocate $2 billion. According to a report created for the university's Board of Regents meeting on Thursday, the properties would be "strictly investment assets, acquired at market rates," and managed by an internal team.

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The proposal by the biggest public research university system in the US comes as investors are pulling away from real estate, with inflation and higher interest rates undercutting values. This month’s collapse of Silicon Valley Bank adds more uncertainty to the economy in California, where the lender played a pivotal role in the venture capital and startup ecosystem.

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The Blackstone fund, known as BREIT, has faced heightened redemption requests, prompting the investment giant to limit outflows while pledging to help support 11.25% annual returns in exchange for the University of California’s six-year, $4.5 billion commitment. 

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BREIT, a multi-property investment firm, is the largest landlord of student housing in the US with 289,000 rental housing units. In January, officials of the university staff union attacked the BREIT deal, claiming Blackstone exacerbates California's housing issue by putting profits before providing affordable housing.

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Several University of California students are now homeless due to the high expense of living close to their classes, which has prompted schools to provide emergency housing options.

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Wednesday's Regents meeting will be picketed by a group of University of California employees who want the institution to stop investing in Blackstone.

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"UC should be both engaging in more reasonably priced supply and higher salaries for its most disadvantaged workers," Kathryn Lybarger, senior adviser supporting labour on the UC Regents Investment Committee, stated in a statement.

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The university's pension and endowments pools, with a combined $100.8 billion as of December 31, will provide funding for the new real estate initiative. To lead the initiative, an internal "entrepreneurial team" would be assembled.

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Ashby Monk, executive director of the Stanford Research Program on Long-Term Investments, suggests that the Washington State Investment Board, which established internal real estate operating firms decades ago, could serve as a model for the university. According to the most recent annual report for the $150 billion state pool, those businesses have been the main contributors to returns for the board's property portfolio.

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In a telephone conversation, Monk stated that the American pension business provides excellent proof of how to achieve it.

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Jagdeep Bachher, the University of California's chief investment officer, pitched a $1 billion in-house real estate business during a meeting in January after regent José Hernandez questioned the university's decision to fund Blackstone rather than directly investing in on-campus housing.

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According to a spokeswoman, Bachher wasn't available for comment prior to the meeting on Thursday.

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Nathan Brostrom, the university's chief financial officer, stated during a Board of Regents meeting in November that the investments office has a fiduciary obligation to produce market-rate returns, which forbids investing in lowered housing for students or staff.

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At the November meeting, Bachher stated, "I definitely don't want to take on another day job by trying to become a real estate developer. "But I believe there is a tremendous chance here to be in the real estate sector within the confines of this fantastic institution."