Letter – Unions & Housing Advocates Continue to Call on UC to Divest from Blackstone and Instead Chart New Course on Affordable Housing

Dear Board of Regents Chair Leib and Investment Committee Chair Sherman:

We are writing to reiterate our opposition to the University of California’s investments in Blackstone Inc. The CIO Office’s recent $4.5 billion investment in Blackstone Real Estate Income Trust (BREIT) — in effect, a bailout of a fund plagued by high redemption requests — cements the University’s position as a major driver of the housing affordability crisis.1 We continue to call on UC to divest from all of its Blackstone holdings, currently valued at over $7 billion, and in its stead chart a new course that expands truly affordable housing for all Californians.2

The current threat of housing insecurity and displacement facing millions of Californians is disproportionately borne by lower wage workers and low-income households — the majority of whom are Black and Latina/o.3 Households in California need to make approximately $42 per hour, almost triple the state’s minimum wage, to afford a two-bedroom apartment.4 This is simply not sustainable, and places millions at risk of losing a roof over their head.

As you know, the United Nations has condemned Blackstone for helping fuel a global housing crisis and singled out its predatory business practices — such as massively inflating rents, implementing heavy fees, and charging tenants for ordinary repairs.5 Blackstone even filed to evict tenants after the Center for Disease Control issued a national moratorium on evictions for nonpayment of rent early on during the pandemic.6

Blackstone tenants in California have recounted similar predatory practices. In 2021, Blackstone purchased 5,600 apartment units in San Diego County — with capital from a fund partly bankrolled by UC staff retirement assets — making it one of San Diego’s largest landlords.7 Tenants of these buildings recently traveled to a Regents meeting to give their personal account of what it is like to live in a Blackstone property. They spoke of eight- to nine-percent rent increases, and sustained maintenance neglect, including cockroach infestations and poorly done repairs — experiences Blackstone executives attending the meeting dismissed as “misinformation.”8

More pain for low-income Californians lies ahead as federal and state eviction moratoriums are lifted. Blackstone’s need to deliver for its investors will create even greater housing insecurity. Head of the company’s Americas Real Estate, Nadeem Meghji, recently indicated during an internal company call that “evictions [will] help contribute to Blackstone’s future ‘cash-flow growth.’“9 Dan Defranceso at Business Insider does not mince words. “…Blackstone is preparing to wage war with tenants who live in buildings it owns either by raising their rent or outright evicting them.”10

The company’s extractive business model is predicated on the gross imbalance between housing supply and demand. There is no other state with a greater housing shortage than California.11 Mr.Meghji assured investors that BREIT will continue to deliver rising rents and higher cash flow because of a long-term supply shortage.12 This is also true for its affordable housing portfolio, as relayed by another Blackstone executive. “The national shortage of affordable housing means occupancy rates tend to hover around 100 percent. As a result…returns are enough to satisfy the core-plus expectation of BREIT.”13 Contrary to claims Blackstone used to justify pouring millions of dollars into campaigns to kill tenant protection ballot measures, investment returns also rely on a low supply of affordable housing.

UC students will also likely not be spared from these predatory practices. Blackstone’s recent acquisition of American Campus Communities — owner of 166 student housing properties, including at UC Berkeley and UC Irvine — positions the company as the largest owner of student housing in the U.S.14 In fact, Blackstone predicts high single-digit growth for rents in both its student housing and affordable housing holdings, and boasts of signing student housing leases with 9 percent rent hikes this coming academic year. 15

The University’s massive investment in Blackstone further entrenches its contribution to the state’s housing affordability crisis. UC is already the largest landlord in California, controlling nearly 150,000 beds in university housing, and has a $11.4 billion real estate portfolio, which includes properties it owns and rents for profit in UC communities.16 Its failure to build enough housing to accommodate student enrollment and population growth for decades has led to housing shortages and rising rents on and off its campuses.17 Moreover, UC’s decision to use public private partnerships to build student housing helps explain rent increases the University admits it has difficulty controlling from for-profit developers.18

As a $44 billion enterprise, the University of California is no casual observer. Its housing policies — whether through its development activities or investment decisions — reverberate throughout all corners of the state. Hannah Appel, Associate Professor at UCLA, captures it succinctly. “

We reiterate our call for the University of California to divest from all of its Blackstone holdings. The status quo will only deepen the inequities hurting the very stakeholders the University has a responsibility to protect — UC students, staff, academic staff, faculty and retirees. Imogen Rose- Smith, a former Investment Fellow in the CIO’s Office who served as advisor to the University’s sustainable investment program, calls out the contradiction. “Blackstone might be fixing a few windows. But their ultimate goal is to deliver a return to investors by making their investment as profitable as possible. The system breaks down when that profit comes at the cost of, not in benefit to, the communities to whom the university should be accountable.”20

The University must change course and set high-road standards that can expand access to below- market housing for both UC stakeholders and the communities in which it invests. It should do so both through its investment and its development activities — including through the new real estate limited liability company announced in January that will develop and operate housing on and around UC campuses. A robust high-road development and investment program can help the University achieve investment returns while creating adequate affordable housing for Californians.