University of California invests $4b Blackstone REIT…
With a $1b backstop. This follows BREIT’s move to limit redemptions on the fund which they said was driven by Asian investor groups. Thoughts on this?
Probably a good investment
What kind of thoughts are you looking for?
The preferred return is 11.25%, and the fund is mostly core+ assets. Pretty standard low risk move for an endowment fund, don't know what the big deal is
Holy shit at that pref haha. Any idea of the fee structure?
I believe UC is paying the full fee structure as all other BREIT holders. Not sure the actual details of that.
You basically land at soft pref at 11.25% rate, I bet its like 11.25% pref that is damn near secured then like 50/50 splits after if not more in BX favor.
They're giving a lot of money to a proven operator. What thoughts are we supposed to have? They want low risk, medium reward and the people making the investment decision want to cover their ass in case that goes wrong. This checks all boxes - who could possibly blame them for investing in a best in class allocator of funds?
Yea it seemed fairly straight-forward so I was taking it at face value, and agree with the above. Generally positive if anything.
Thought it was a good deal for both parties.
UC (likely) gets good risk-adjusted returns given the structure of the deal, the quality of the underlying assets, and BX's track record. 11.25% annualized net preferred returns backed by a $1bn equity commitment should give them enough of a cushion to feel good about the investment. Plus they get to deploy $4bn (not easy) and capture some upside if BX outperforms the hurdle.
BX gets $4bn in long-term capital (six year lock-up and since it's common equity they get to charge standard management and incentive fees, plus an additional 5% cash promote if they outperform the 11.25% net hurdle) and helps alleviate some of the investor's concerns re: near-term fund redemptions and liquidity. They're essentially selling a put option that they think is out of the money - the deal should be positive expected value when you compare the present value of the fees they're likely to generate vs. the probability that they lose that entire $1bn (guessing that NAV would have to fall significantly from today's levels in order for the entire collateral to be wiped out)
Unpopular opinion warning.
A month ago in this thread (https://www.wallstreetoasis.com/forum/real-estate/breit-fund-limits-wit…) the consensus was that the BREIT withdrawal limits news was a nothing-burger, and everyone was overreacting. Now, the second shoe is dropping, with BX giving away a sweetheart, blood-in-the-water deal to UCI (11.25%?!), and it's somehow proof of BX's ability to walk on water? Maybe, years ahead, both parties come out ahead (at the expense of existing investors, but I digress.)
At the very least, it's evidence of a very, very large liquidity squeeze occurring in real estate. The fed started raising rates less than a year ago, and at an almost-unprecedented pace. As Milton Friedman said, 'monetary actions have lags that are both long and variable'
My two cents: this marks first inning of interest rate fallout for real estate. Again, probably not a popular opinion here.
Agree with this. BX had to see more withdrawals coming and decided to give up economics to stop the possible run on the bank. They simply screwed the BREIT’s retail investors layering them with a large pref. RE valuations will come down, not an if, but with 6y money locked in, BX can sleep at night.
Definitely agree with the sentiment, but aren't BREIT retail investors unaffected by this deal? Might be wrong here since the details aren't clear, but could argue that they're better off since this deal provides liquidity for near-term redemptions.
Reasoning is that U of C bought $4bn of common stock @ the same price/NAV as other investors with the same terms and fees. What makes this trade different is that there's a side agreement, where U of C is "promised" a 11.25% net return guaranteed by a $1bn of BREIT's own common stock (i.e. BREIT is subordinating their equity to U of C's equity - effectively taking on a first loss position. If the 11.25% net return hurdle isn't met, it gets topped up from this $1bn amount), but it doesn't seem like U of C is getting paid before other shareholders in the same class.
In fact, if BREIT outperforms the hurdle, U of C has to pay an additional 5% in promote fees (as an exchange for the $1bn equity cushion). The real advantage for U of C is in downside protection, since they have a $1bn equity cover prior to incurring any capital losses (which retail investors don't have).
Definitely unfair for the retail investors who didn't have access to the same "cushion" as U of C, but their gains and losses would've stayed the same irrespective of U of C investing.
Regardless, when you have a big-name investor who can write a $4bn check AND you need the liquidity, BX had to sweeten the deal to make it work. The more important q is what this deal implies for the broader RE market
this. blackrock just announced same thing in their uk vehicle
Would there be any banks on this deal? Just lawyers mentioned in disclosure.
Implore you to read Matt Levine's article the other day that delves into it https://www.bloomberg.com/opinion/articles/2023-01-04/private-markets-d…
warning signal about the commercial RE sector as investors are demanding more protection for getting in at the current price, but “at the current price” is what’s touted
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