Is Private Equity Firm, Blackstone Group, Taking Over San Diego's Rental Market?
by John Lawrence
In a deal with the Conrad Prebys Foundation, Blackstone Group, CEO'd by Steven Schwarzman, is buying 5800 rental units in San Diego. According to the San Diego Union, "The deal makes Blackstone one of the biggest real estate holders in San Diego County. It already owns $4.5 billion in assets here — including Legoland and the Hotel del Coronado. The transaction, which also includes Los Angeles-based investment firm TruAmerica as a partner, is expected to close in the next few weeks. The sale of the apartments was praised by Dan Yates, the president of the Conrad Prebys Foundation, who said the portfolio was assembled by Conrad Prebys — a San Diego developer — himself. Yates said the money from the deal will be used for grants primarily in San Diego."
“Conrad Prebys was a sharp businessman who found true joy in the act of giving, and I believe he would be honored to see the result of his life’s work dedicated to continuing his philanthropic legacy,” Yates wrote in an email." Billionaire Conrad Prebys died in 2016 so it's very unlikely he "assembled the deal himself." But, even if he did, and the money will be used for philanthropic grants, Conrad Prebys has his name on half he buildings in San Diego already. It seems that billionaires can't get enough of charitable giving when it gets their names on buildings even though it will probably mean that relatively affordable rental units will become unaffordable after Blackstone Group "fixes them up" and raises the rent and that the true beneficiaries will be the investors in the Blackstone Group. It is to be noted that California sanctions on evictions, put in place during the pandemic, will expire this June 30.
San Diego real estate analyst Gary London said, “To my knowledge, this is the largest real estate transaction in San Diego County history.” So the process goes like this: the tenants in Blackstone's newly acquired rental units will be given 30 day notices to leave so that Blackstone can do badly needed renovations. This is all perfectly legal. There is no need to "evict" unless the tenants refuse to leave even after given proper notice. The Union article goes on,"All the apartments are market-rate but Blackstone says it plans to partner with nonprofit Pacific Housing to provide services for residents, including after-school tutoring, financial literacy classes, and health and wellness initiatives at no cost. It did not address it directly, but the move seems to counteract earlier concern with the foundation’s sale of these holdings." The key word here is "market-rate." This means that once Blackstone puts in its "improvements," they can charge whatever rent they can get even if it's 50% more than what tenants were previously paying. This is how the game is played, and this is why there are fewer and fewer affordable apartments in San Diego. Investors buy up apartments with affordable rents and convert them into apartments at "market-rate." Ironically, Blackstone intends to provide new tenants with "financial literacy classes." Presumably this would mean tutoring them to the advisability of investing in the Blackstone Group. And what were the "earlier concerns with the foundation’s sale of these holdings." Could it be that the newly converted "market-rate" apartments would reduce the stock of affordable rental units in San Diego?
The most pathetic aspect of this deal was this: "A letter was sent to the foundation in early February from San Diego Mayor Todd Gloria, San Diego County Supervisors chair Nathan Fletcher and California Senate President Pro Tem Toni Atkins to urge them to take into account future affordability of the apartments when considering a sale." I'm sure they'll do that even if it means their investors will take a slight hit to their profuts. Get real, politicians! Your letter is a fig leaf and is worse than useless. The letter went on: “A substantial number of these units are home to working individuals and families,” they wrote, “and are some of the limited inventory in the region of non-deed restricted, naturally occurring affordable housing options for San Diegans.” And the most egregious oxymoron of the letter: "non-deed restricted, naturally occurring affordable housing options." There is no such thing as "natyrally occurring affordable housing" at least not when private equity firms like Blackstone see a profit-making opportunity. The fact that they are "non-deed restricted" means that they are fair game. In any event affordable housing is in the eye of the beholder. It means absolutely nothing unless it is deed restricted or publicly owned.
The article concludes with: "The Conrad Prebys Foundation gave more than $71 million to 112 organizations across San Diego County in March to bolster the arts, health care, medical research, animal conservation, education, and the welfare of young people. The biggest grant — $15 million — went to the San Diego Symphony." Of course! The symphony will always profit as long as billionaires want their names on more buildings and symphony programs. Meanwhile working class tenants lose.
