Private equity giant Blackstone Group plans to purchase 66 residential complexes in San Diego County for more than $1 billion in one of the biggest real estate transactions in local history.
New York-based Blackstone is purchasing roughly 5,800 apartment units from the Conrad Prebys Foundation. It said it intends to spend $100 million to improve the new assets.
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.
The deal will bring Blackstone’s apartment total in San Diego County to 6,700 units, making it among the top three biggest landlords. San Diego R&V Management holds about 8,000 apartments and is the largest landlord.
“Blackstone has long been a big believer in San Diego, with multiple investments across our real estate business,” wrote Kathleen McCarthy, global co-head of Blackstone Real Estate, in an email. “We look forward to ensuring that these properties continue to provide the community with a high-quality rental option at a good value.”
San Diego real estate analyst Gary London said the $230 million sale of the downtown Manchester Pacific Gateway in September to a biotech office developer was the biggest recent deal he could recall.
“To my knowledge, this is the largest real estate transaction in San Diego County history,” he said.
Even when adjusted for inflation, past deals seem to pale in comparison. For instance, the 25,000-acre Otay Ranch — now the center of homebuilding in San Diego County and nearly the size of San Francisco — sold for $150 million in 1988.
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.
KPBS was first to report that the foundation was looking to sell its portfolio in February. 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.
“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.”
Blackstone said it plans to keep the majority of units affordable for residents who make 80 percent or less of the area median income during its ownership. “Blackstone is eager to engage with the State of California and San Diego municipal government to explore opportunities to support and/or add affordable housing in San Diego,” it said.
Blackstone’s purchase comes as California is set to end its statewide eviction ban on June 30, which has prevented landlords from evicting tenants who could not pay rent due to loss of income related to COVID-19. Blackstone said it has not evicted anyone for non-payment since the start of the pandemic across its national portfolio.
Blackstone already employs about 5,500 people in San Diego County. It estimates the new multifamily purchase from Conrad Prebys will create 500 jobs.
It said some of its refurbishment of apartments will include addressing deferred maintenance and adding gyms, greenspace and playgrounds.
Rent growth was slow during much of the pandemic but San Diego County has seen a resurgence in recent months. Average rent had increased 5 percent in a year as of this week, said real estate tracker CoStar, to $1,940 a month. Analysts have pointed to an improving economy and low vacancy rates for continued growth.
Real estate website Zumper said in its April rent price report that San Diego was one of the few major markets in the nation with rent increases. It said annual rent growth was down in San Francisco, New York, Washington, D.C., Los Angeles, San Jose, Boston, Oakland and many other formerly hot rental markets.
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.