University of California investment officials said Thursday their controversial decision to invest $4 billion in private equity giant Blackstone was a “capitalist decision” aimed at maximizing returns for UC retirees and pushed back against criticism that it would worsen the student housing crisis.
The investment controversy escalated this week, when more than 40 organizations representing UC faculty, students, workers and statewide housing advocates demanded that the university separates from Blackstone. The groups blame Blackstone for exacerbating the state’s housing crisis by buying up homes and apartments in California and elsewhere, driving up rents to unaffordable levels. The groups also demanded a rent freeze on all UC housing, both on and off campus, a commitment to end no-fault evictions and other protections in a letter to senior UC officials. .
UC Chief Investment Officer Jagdeep Singh Bachher defended the investment Thursday at the Board of Regents meeting in San Francisco. He said he “deeply appreciates” the housing crisis, but also acknowledged a pension crisis across the country that has reinforced his commitment to investing in assets with a robust rate of return for current and future pensioners in the CPU. Under the deal with the Blackstone Real Estate Income Trust, UC would earn a minimum annual return of 11.25% over six years, well above the 6.75% needed to keep the UC pension fund on solid, according to university investment managers.
“The job of this team day in and day out is to select assets that will be accretive for future generations and future retirees,” Bachher said. “And to do that… I have to make capitalist decisions. And this decision regarding Blackstone…was purely an investment decision for the benefit of UC…and to meet the needs of our retirees and our endowment.
Blackstone executives said the fund has “virtually no ability to influence the trend of market rents” because it owns less than 1% of rental housing in the United States. Only 6% of its housing investments are in California and more than two-thirds of residential properties are designated as affordable housing where rents are set by the federal government.
But Kathryn Lybarger, president of UC’s largest union of employees, AFSCME Local 3299, told Regents that Blackstone was contributing to a housing crisis that had driven 70% of its members to live away from the campuses where they work and many students to sleep in their cars. . An estimated 417,000 California students lack a stable place to sleep, including 5% at UC, 10% at California State University, and 20% at California Community Colleges.
Lybarger, an advisory member of the investment committee, urged UC to be on the ‘right side of history’ by standing up against Blackstone like the university did against apartheid, Big Tobacco and fossil fuel companies .
“We believe UC has a moral obligation to chart a new course, not one that puts Blackstone shareholders first, but rather one that makes UC students and workers less likely to become homeless. shelter,” she said.
Dianne Klein, chief of staff at UC Investments, said the investment was a “fantastic deal” for the university and called the claim it was worsening the housing crisis “demonstrably false”.
“We believe the solution to the housing crisis is to build more housing,” Klein said.
Regent John A. Pérez said the various considerations were “hard questions to balance.” He said UC must be wary of the potentially negative consequences of investment decisions while protecting the financial interests of pension fund members. Without sufficient returns on investments, he said, they might have to increase their contributions to the pension fund, which would reduce the wage gains they might receive.
While defending Blackstone’s investment, Bachher also proposed that UC invest $2 billion directly in real estate near campuses so it can control the development of any potential housing for students, faculty and staff. , as well as laboratories, classrooms and other necessary facilities. Over the past nine years, Bachher’s team has purchased properties for UC near campuses in Berkeley, Santa Barbara, Santa Cruz and Los Angeles.
Bachher told the Regents that UC, as landlord, could choose to prioritize housing for students living in cars, for example, while also being careful to protect the interests of boarding members.
UC’s actions involving an investment, the Hilltop apartment complex in Santa Cruz, have drawn criticism from a former tenant who claimed the university offered to raise its rent last year by 60% after having only made “cosmetic” improvements. Andy Brown of UC Investments said the rent increase for this particular tenant was 8% and the average increase last year for all tenants, most of them UC students, was 4, 5%.
Bachher said UC will not increase Hilltop’s rents this year.