University of California investment officials said Thursday that their controversial decision to invest $4 billion in private equity giant Blackstone was a “capitalistic decision” to maximize returns for UC retirees and rebuffed criticism that it was worsening the student housing crisis.

Controversy over the investment heated up this week, when more than 40 organizations representing UC faculty, students, workers and statewide housing advocates demanded the university divest from Blackstone. The groups blame Blackstone for exacerbating the state’s housing crisis by buying up homes and apartments in California and elsewhere, pushing up rents to unaffordable levels. The groups also demanded a rent freeze on all UC housing, both on and off campus, a commitment to end no-fault evictions and other protections in a letter to top UC officials.

UC Chief Investment Officer Jagdeep Singh Bachher defended the investment Thursday at the Board of Regents meeting in San Francisco. He said he “deeply appreciates” the housing crunch but also recognized a pension crisis across the nation that had steeled his commitment to invest in assets with a robust rate of return for current and future UC retirees. Under the deal with the Blackstone Real Estate Income Trust, UC would get a minimum 11.25% annual return over six years — well above the 6.75% needed to keep the UC pension fund on solid footing, according to university investment officials.

“The job of this team day in and day out is to pick assets that are going to be accretive to future generations and future retirees,” Bachher said. “And to do that … I have to make some capitalistic decisions. And that decision around Blackstone … was purely an investment decision for the benefit of the UC … and to help the needs of our pensioners and our endowment.”

Blackstone executives have said the fund has “virtually no ability to impact market rent trend” because it owns less than 1% of rental housing in the United States. Only 6% of its housing investments are in California, and more than two-thirds of the residential properties are designated as affordable housing where rents are set by the federal government.

But Kathryn Lybarger, president of UC’s largest employee union, AFSCME Local 3299, told regents that Blackstone was contributing to a housing crisis that had pushed 70% of her members to live far from the campuses where they work and many students to sleep in their cars. An estimated 417,000 California students lack a stable place to sleep, including 5% at UC, 10% at California State University and 20% at California Community Colleges.

Lybarger, an investments committee advisory member, urged UC to be on the “right side of history” by standing against Blackstone as the university did against apartheid, Big Tobacco and fossil fuel companies.

“We believe that UC has a moral obligation to chart a new path, not one that prioritizes Blackstone shareholders but rather one that makes UC students and workers less likely to become homeless,” she said.

Dianne Klein, UC Investments chief of staff, said the investment was a “fantastic deal” for the university and called the assertion that it was worsening the housing crisis “patently false.”

“We believe the solution for the housing crisis is to build more housing,” Klein said.

Regent John A. Pérez said the various considerations were “tough issues to balance.” He said UC must be wary of potentially negative consequences of investment decisions while also protecting the financial interests of retirement fund members. Without sufficient returns on investments, he said, they might have to increase their contributions to the pension fund, undercutting any wage gains they may receive.

While defending the Blackstone investment, Bachher also proposed that UC invest $2 billion directly in real estate near campuses so it could control development of any potential student, faculty and staff housing along with labs, classrooms and other needed facilities. In the last nine years, Bachher’s team has purchased properties for UC near campuses in Berkeley, Santa Barbara, Santa Cruz and Los Angeles.

Bachher told regents that UC, as property owner, could choose to give housing priority to students living in cars, for instance, while also taking care to protect the interests of pension members.

UC’s actions involving one investment, the Hilltop apartment complex in Santa Cruz, have drawn criticism from one former tenant who asserted the university proposed to jack up his rent last year by 60% after making only “cosmetic” upgrades. Andy Brown of UC Investments said the rent increase for that particular tenant was 8% and that the average increase last year for all tenants, most of them UC students, was 4.5%.

Bachher said UC would not raise Hilltop rents this year.

Teresa Watanabe

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