The Story

The pace of business usually slows at UC Investments in December. As we head toward the close of our fiscal second quarter, virtually all offices at the University of California’s system-wide headquarters shut down. Employees are required to take more than a week of holiday time off, a mandatory winter curtailment with few exceptions made.

Except this year at UC Investments, opportunity called – loudly. For a handful of team members, that meant something far more exciting, and likely far more lucrative for the University of California, than time off.

Within a span of three weeks, UC Investments had signed a deal with real estate behemoth Blackstone to invest $4 billion in its market-leading real estate investment trust known as BREIT. The size of the deal – and more important, its terms – made headlines around the world. It was UC Investments’ single largest transaction ever, and while the deal closed quickly, it took years of steady, quiet preparation to reach that game-changing milestone. With one big move and the likelihood that it won’t be the last, UC Investments was compared to investors such as Berkshire Hathaway and others well-positioned to seize opportunities that require investment acumen, decisiveness, and lots of cash.

The adventure officially began on December 8, 2022 when Chief Investment Officer Jagdeep Singh Bachher happened to catch Blackstone President Jonathan Gray talking about BREIT live on CNBC’s “Squawk on the Steet.” Wealthy individual investors, mostly in Asia, were looking to shore up liquidity in volatile markets and sought to redeem BREIT shares. With $9 billion in liquidity, BREIT was well-positioned, but when Blackstone hit its contractual redemption limits and began restricting withdrawals, the media sensed the makings of a juicy story and created a drama not backed by facts.

As Gray spoke on camera, Bachher thought of UC Investments’ own real estate portfolio and the one Gray had built at Blackstone. Bachher had spent three years streamlining assets and changing the portfolio’s strategic direction. Now with cracks in the global order and high inflation and interest rates at home, his efforts to bank liquidity seemed especially well-timed. Recent sales from the real estate portfolio alone had netted more than $4 billion that was just waiting for the right opportunity to knock.

Minutes after Gray left the television screen, Bachher sent him a note: “Hi Jon. Hope all is well. I just wanted to offer in case we can help with the liquidity needs at all. I know you don’t need us for any of it. But just in case we can help creatively pls don’t hesitate to call me. Happy to do a bespoke solution not widely marketed. Thanks. Jagdeep”

A few seconds later came the response: “Thank you Jagdeep. Good to know. Best, Jon”

At Blackstone’s New York headquarters, this out-of-the-blue offer quickly got mental gears churning. With ample liquidity, BREIT, which is sold through select financial advisors and not publicly traded, really didn’t need more cash. What it needed was a public vote of confidence to calm the nerves of its individual investors. A big infusion from, say, a sovereign wealth fund might work. But the University of California? The idea intrigued. Blackstone and UC Investments have been trusted partners for 16 years.

Three days later, Gray called Bachher on Sunday afternoon to further discuss possibilities and a few days after that, Gray asked his partner, Nadeem Meghji, Blackstone’s head of Real Estate Americas, to fly to San Francisco. Meghji had planned for what he thought would be a two-hour “conceptual” meeting with Bachher, after which he’d fly back to New York for a holiday party he’d promised to attend. But waiting for him in a quiet downtown hotel were Bachher and UC Investments’ co-heads of real estate, Arthur Guimarães and Satish Swamy as well as the youngest UC Investments’ team member, 23-year-old analyst Martin Scott, who was eager to listen, watch, and learn.
The UC team wanted to understand, in detail, the BREIT financials and the companies that make up the trust. They knew that BREIT was primarily invested in high-growth sectors like data centers, warehouses, and apartments across the U.S. Sunbelt. With their understanding of the strong tailwinds in these areas, they recognized the opportunity in the disconnect between BREIT’s strength and the negative media commentary. Meghji answered countless questions backed by the materials he’d brought and when it became clear that “conceptual” was morphing into tangible, he got Gray on the line.

“It was kind of like haggling in a Turkish bazaar,” Meghji says. “We’d talk, reach an impasse, I’d call Jon from another room, and the UC team would huddle. We did this like four times. I thought. ‘This is never happening.’ We both kept saying, ‘We don’t need to do this.’”

But after some nine hours, with the San Francisco participants snacking and quaffing coffee for fuel and that New York holiday party barely an afterthought, a tentative deal took shape. Bachher scribbled the terms in a note pad, the team shook hands, and Bachher offered a toast.

As part of a strategic venture with Blackstone, UC Investments would invest $4 billion in BREIT (later increased to $4.5 billion) for a five-year hold with unlimited upside. Blackstone contributed $1 billion of its current BREIT holdings to support an 11.25% minimum target annualized net return, should BREIT’s annual returns dip below 11.25%. After five years, the investment would be fully redeemable over 24 months, an effective six-year lock-up. As part of the 11.25% supported return, BREIT would pay UC a yearly dividend of approximately 4.4% distributed monthly in cash and reinvested as additional shares.