Despite the fact that the COVID-19 virus prompted unprecedented drops in college enrollment, investor interest in student housing projects soared during the pandemic. But the economic downturn that followed the virus’ onset provided the old adage: when the economy is down, college enrollment only goes up, and that was reflected in the uptick of demand for student housing. Sales in the sector exceeded $10 billion in 2021, more than double what the asset class experienced in 2020. While demand is good leverage for student housing owners and investors, it can be a nightmare for universities like the ones that comprise the University of California system which is notorious for chronic student housing shortages. However, the University of California is making a landmark investment with Blackstone Properties at a critical time for the company.
In order to acquire rental apartments and student housing, the University of California has invested $4 billion in a real estate fund managed by Blackstone. Blackstone will also provide more than $1 billion as part of the arrangement to ensure an 11.25% annualized return on the university’s investment. Blackstone will be entitled to a 5% incentive fee if returns are higher.
For Blackstone’s Real Estate Income Trust Inc. fund, often known as BREIT, a $68 billion real estate investment vehicle that also invests in warehouses, data centers, and other commercial property types, the investment appears to be a welcome endeavor. After Blackstone had to restrict withdrawals in December 2022 as a result of receiving redemption requests that surpassed the company’s liquidity constraints, the fund came under fire.
