Investment officials at the University of California said Thursday that its controversial decision to invest $4 billion in private equity giant Blackstone was a “capitalist decision” to maximize returns for UC retirees and rejected criticism that it was worsening the student housing crisis.
Controversy over the investment heated up this week, when more than 40 organizations representing UC faculty, students, workers and housing advocates across the state demanded that the university divest from Blackstone. The groups blame Blackstone for exacerbating the state’s housing crisis by buying up houses and apartments in California and elsewhere, driving up rents to unaffordable levels. The groups also called for 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 high officials of the UC.
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 nationwide pension crisis that had strengthened his commitment to investing in assets with a solid rate of return for current and future UC retirees. Under the agreement with Blackstone Real Estate Income Trust, UC would earn a minimum annual return of 11.25% for six years, well above the 6.75% needed to keep UC’s pension fund on a solid footing, according to investment officers from the university.
“The job of this team day in and day out is to choose assets that will be beneficial to future generations and future retirees,” Bachher said. “And to do that… I have to make some capitalist decisions. And that decision about Blackstone…was purely an investment decision for the benefit of UC…and to help the needs of our retirees and our endowment.”
Blackstone executives have said the fund has “virtually no ability to affect the rental trend of the market” 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 employee union, AFSCME Local 3299, told regents that Blackstone was contributing to a housing crisis that had pushed 70% of its members to live far from the campuses where they work since 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 opposing Blackstone as the university did against apartheid, Big Tobacco and fossil fuel companies.
“We believe UC has a moral obligation to chart a new path, not one that puts Blackstone shareholders first, but one that makes UC students and workers less likely to be homeless,” he said.
Dianne Klein, UC’s chief of staff for Investments, called the investment a “fantastic deal” for the university, calling the claim that it was making the housing crisis worse “patently false.”
“We believe that the solution to the housing crisis is to build more housing,” Klein said.
Regent John A. Perez said the various considerations were “difficult issues to balance.” He said UC must be wary of the potentially negative consequences of investment decisions while protecting the financial interests of retirement fund members. Without sufficient investment returns, he said, they may have to increase their pension fund contributions, undermining any salary gains they may receive.
While defending the Blackstone investment, Bachher also proposed that UC invest $2 billion directly in real estate near campuses so that it could control the development of any potential student, faculty, and staff housing along with laboratories, classrooms, and other necessary facilities. . Over the past nine years, Bachher’s team has purchased UC property near the Berkeley, Santa Barbara, Santa Cruz and Los Angeles campuses.
Bachher told the regents that UC, as the owner, could choose to give housing priority to students who live in cars, for example, while also protecting the interests of pension members.
UC’s actions involving an investment, the Hilltop apartment complex in Santa Cruz, drew criticism from a former tenant who claimed the university proposed raising his rent last year by 60% after making only “cosmetic” improvements. Andy Brown of UC Investments said the rent increase for that particular tenant was 8% and the average increase last year for all renters, most of them UC students, was 4.5 %.
Bachher said UC would not raise rents for the Hilltop this year.
