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Blackstone: UC investment “changed the narrative” around BREIT

University of California endowment’s $4B commitment followed withdrawal restrictions

Blackstone's Nadeem Meghji (Blackstone, Getty)
Blackstone's Nadeem Meghji (Blackstone, Getty)

“When someone calls with $4 billion of capital, you answer the phone.”

That’s how much of a no-brainer Nadeem Meghji, Blackstone’s head of real estate Americas, said it was fielding the University of California’s endowment’s approach for a massive infusion into Blackstone’s real estate investment trust.

The “home run” deal came together after a CNBC interview around the time the fund was beset by redemption requests and negative press, Meghji said.

“They saw [Blackstone president] Jon Gray speaking on CNBC in December and reached out to us to see if they could be helpful by deploying capital in a way that would create a win-win,” Meghji told the outlet.

The deal “changed the narrative” around the fund, Meghji said, after its fair share of less-than-favorable headlines in recent weeks.

The fund last month restricted investor withdrawals, sparking concerns over the $69 billion real estate fund. Blackstone limited redemptions after demand for withdrawals exceeded 2 percent of the net asset value monthly limit and 5 percent of the quarterly threshold; Meghji confirmed those requests reached 5.4 percent of the net asset value in December.

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UC Investments’ commitment has a unique structure. The university’s common equity commitment will be effectively locked in for six years. Its shares will be put into a venture that will include a $1 billion commitment from Blackstone.

The venture features an 11.25 percent hurdle rate; if BREIT’s net annualized return exceeds the rate, Blackstone receives a 5 percent incentive fee. Otherwise, it must make up the difference up to the $1 billion contribution. For Blackstone to profit, the fund needs to post net annualized returns exceeding 8.7 percent.

For now, Blackstone has $14 billion in liquidity on its hands, which can go towards acquisitions, redemptions or whatever the fund’s managers determine.

“That much liquidity gives us the flexibility to do a lot of exciting things,” Meghji said.

— Holden Walter-Warner

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