The Conrad Prebys Foundation, a charitable organization, shocked affordable housing advocates last week when it announced that it would sell 66 apartment buildings to a private equity firm.
The anticipated more than $1 billion sale is one of the biggest real estate transactions in the region’s history and would make the New York-based Blackstone Group one of the largest landlords in San Diego County overnight.
While Blackstone has promised to ensure that most of the roughly 5,800 units remain within reach for low-income and middle-class renters, the announcement left some advocates concerned that thousands of naturally affordable units — and those living in them — could be in peril, based partly on criticisms aimed at the private equity firm in recent years.
The Prebys Foundation acknowledged that Blackstone wasn’t the only investor interested in the properties, but said it decided the private equity firm and one of its partners was best suited to acquire them. Meanwhile, others who learned of the foundation’s planned sale once the deadline for bids was imminent said they would have been eager to discuss how other organizations might help ensure units remained affordable or perhaps even buy some of the Prebys apartments if they had known of the situation earlier.
The planned sale that had until recently fallen largely under the radar highlights both the vulnerability of naturally affordable housing and the lack of requirements for owners of those units to notify local governments of plans to unload properties. That reality complicates outside efforts — whether by local governments or philanthropists — to quickly step in.
The foundation said it officially acquired the properties in August 2019, about three years after its founder and namesake, Conrad Prebys, died, and immediately began setting the stage for the sale. The foundation said it needed to diversify the foundation’s assets in keeping with charitable best practices and state law, and that the sale would allow it to fulfill Prebys’ philanthropic wishes.
In a statement, foundation president Dan Yates wrote that the sale to Blackstone would “enable transformational change in our community” and “support grant distribution primarily in San Diego.”
Blackstone is partnering with TruAmerica Multifamily, another investment firm that acquires, renovates and manages apartment buildings, and said it has retained the nonprofit Pacific Housing to provide after-school tutoring and financial literacy classes, among other services, to tenants.
Blackstone already owns hundreds of housing units locally, in addition to Legoland and the Hotel del Coronado, and the buildings it plans to buy from the foundation are spread across the county — from San Ysidro to Escondido. Blackstone said it intends to invest more than $100 million into the properties.
“We will rely on economies of scale to make needed improvements to the assets while still keeping rents affordable,” Noah Hochman, TruAmerica Multifamily’s co-chief investment officer and head of capital markets, wrote in a statement.
Many of the units the Prebys Foundation is preparing to sell to Blackstone are considered naturally affordable units, a category of housing particularly vulnerable to demolitions and large rent increases after major renovations that often follow ownership changes.
Naturally affordable homes are ones that offer below-market rate rents without government subsidies, and are typically in old buildings. A review of the foundation’s properties suggests that many of its roughly 5,800 units were naturally affordable to families making less than the county’s area median income, which is $95,100 for a family of four.
In a statement, Blackstone said it expects that residents making 80 percent or less of the area median income will continue to find most of the apartments affordable.
To put the foundation’s portfolio into perspective, its properties supply more housing regionwide than the nearly 5,600 largely rent-restricted affordable units that housing developers received permits to build from 2014 to 2019, per data from the California Department of Housing and Community Development.
Housing industry experts said the prospect of losses wouldn’t lead to such panic if the region was producing enough new units to match the demand for low-and-middle income housing. Instead, San Diego County and its cities have long fallen short  of state housing production targets.
“If we didn’t have a housing crisis, if we had housing for folks, if there wasn’t so much inequality, this wouldn’t be a story. This would just be … a big sale,” said Ricardo Flores of the Local Initiatives Support Corporation, a nonprofit that supports affordable housing development. “But we know that the sale is going to lead to something that’s already a problem.”
To deal with those challenges, the City Council last year approved a plan to deploy at least $6 million annually  on preservation incentives in the wake of a San Diego Housing Commission report  that estimated that the city alone could lose more than half of its affordable rental units  in the next 20 years. Naturally affordable units like many of those set to be sold to Blackstone — the sale is still pending — were considered particularly susceptible to redevelopment and rent hikes.
Affordable housing advocates, startled first by the news of a planned sale  and more recently finding out through the Union-Tribune that a massive real estate company would amass all of the units , said they wished there had been more time for community leaders and local entities to make offers and suggestions to protect those now living in the Prebys apartments.
Instead, the properties were quietly marketed by broker Eastdil Secured to large institutional investment groups, said Stephen Russell, CEO of the San Diego Housing Federation, the region’s affordable housing lobbying group.
“By the time this was known, literally the due date was upon us and there was no opportunity,” he said.
The foundation countered in a statement that Eastdil Secured’s marketing process was typical for a portfolio of its size and quality.
“The broker conducted proactive direct outreach and also received organic interest from multiple entities,” the foundation wrote. “The offering was shared to local, regional, national and international operators and investors.”
Around the same time that Russell learned of the sale, state Senate President Pro Tem Toni Atkins, County Supervisor Nathan Fletcher and Mayor Todd Gloria implored the Conrad Prebys Foundation to consider the potential impact.
“It would be a devastating blow to the San Diego region if these apartments were to become economically out of reach for so many,” Atkins, Fletcher and Gloria wrote in their Feb. 6 letter . “We ask that when considering potential buyers, you take into account future plans to maintain affordability for these units.”
Yates responded at the time that the foundation believed the sale would allow the board to focus more on supporting local causes — and that existing regulations might shield current tenants from the worst outcomes.
“Since the winning bid has not yet been selected, we cannot speak to the intentions of the future owners of the portfolio, but believe the current laws and regulations, including the California Tenant Protection Act, provide clear guidance to the future owners, safeguard the portfolio’s residents and provide value to the future owner,” Yates wrote on Feb. 9 .
That same day, KPBS broke the news  on the planned sale.
Afterward, Russell said, the Housing Federation heard from two major philanthropic groups that were interested in engaging with the Prebys foundation.
“(They) were surprised at the rapidity of the sale and would have liked the opportunity to at least talk to the seller to see if some of that housing could have been preserved,” Russell said.
One of those groups was the Alliance Healthcare Foundation, which in the last 18 months began providing loans and gap financing for affordable and middle-income housing projects as soaring housing prices put more San Diegans on the brink.
“It’s obviously a big lift for a billion-dollar transaction to put together a group of folks that could have activated at that level, but I like to think we could have at least had more brain power around the table to come up with a workable solution that might have still met some of the needs of the Prebys estate, but also reduced the risk of a significant loss of affordable housing,” said Sarah Lyman, executive director of Alliance Healthcare Foundation.
Now, Lyman said, she’s hoping the Conrad Prebys Foundation and Blackstone might still be open to a conversation about how to ensure units remain affordable.
After last week’s news about Blackstone, Lyman and Russell said local groups are interested in getting involved — both with the Prebys transaction and in future scenarios where naturally affordable units may be in peril. They hope to gather experts and organizations to talk through what it would take to quickly step up and how they might prepare to do so.
“Maybe it’s not too late to come together and find some win-win solutions,” Lyman said.
At least one elected official is planning to approach Blackstone too. Nick Serrano, Gloria’s deputy chief of staff, said the mayor planned to reach out to Blackstone to learn more about its plans.
“The mayor will encourage that affordability is maintained and the current residents are not displaced,” Serrano wrote in an email.
In a separate statement, Gloria joined Atkins and Fletcher in thanking the Prebys Foundation for hearing their concerns but reiterated their concern.
“The entire community will be watching carefully as this transaction unfolds. With our critical need for affordable and accessible housing having been made even worse by the pandemic, it would be unthinkable for these apartments to be put out of reach — especially for current tenants,” they wrote in a joint statement.
The foundation said it intends to use the money from the sale to further its philanthropic mission. In the past, grants have gone to bolster health, science, the arts and education. Prebys gave away $350 million during his lifetime , the Union-Tribune noted earlier this year.
Still, Blackstone is a highly controversial pick for a civic-minded foundation. In 2019, a pair of United Nations rapporteurs — independent experts who report back to the intergovernmental organization — concluded that Blackstone’s practice of turning homes into financial instruments that were then traded on global markets had “devastating consequences for people.” 
After the recession in 2008, Blackstone and its Invitation Homes, another investment and property management company that’s since gone public, purchased and carved up foreclosed single-family properties. The private equity firm then sold bonds to investors that were backed by the rental payments and used the mortgages as collateral.
The rapporteurs said the incentives built into this financing model make housing less affordable, particularly in communities of color, and reported that some people were being charged for ordinary repairs and maintenance on top of their normal rent. The need to maintain “a 94 percent paying occupancy rate across its properties in order to satisfy investors” had put pressure on managers to quickly evict people, the letter states.
A similar pattern played out with multi-family dwellings: After purchasing a building and making repairs, the rents would have to go up, which over the long term meant tenants were pushed out in favor of ones with higher incomes, the rapporteurs wrote.
The letter also goes on to state that Blackstone has used “its significant resources and political leverage to undermine domestic laws and policies that would in fact improve access to adequate housing consistent with international human rights law.” In 2018, Blackstone spent more than $6 million to stop  a California ballot measure that would have cleared the way for cities to establish rent control laws. The measure failed.
When asked for comment, Blackstone pointed to an official response  in 2019 in which it argued that the rapporteurs’ letter was inaccurate and misleading. Generally, Blackstone said its investments had improved living conditions for its tenants — as evidenced by “high levels of customer satisfaction” and better lease renewal rates — creating more housing and jobs in the process. It said its rents were in line with the broader market.
Blackstone said its opposition to the rent control ballot measure was not inconsistent with a wider “right to housing” but aligned with the thinking of “virtually all independent economists” who claimed the measure would have exacerbated California’s housing shortage by discouraging new construction and investment.
Blackstone also said it does not immediately move to evict people for late payments, because “Invitation Homes is in the business of housing families.” Blackstone did not, however, address the UN rapporteurs’ claim, which came from a press report , that in Charlotte, North Carolina, Invitation Homes filed eviction proceedings in 2013 against 10 percent of its renters, a relatively higher rate when compared to one of the city’s other largest landlords.
In 2016, a paper presented by the Federal Reserve Bank of Atlanta took a closer look at the housing region surrounding Atlanta . It did not single out Blackstone but concluded more broadly that corporate landlords were more likely to file eviction notices than smaller ones, even after controlling for property and neighborhood characteristics.
Blackstone said it hasn’t evicted anyone for nonpayment of rent during the pandemic, but did not directly respond to a question about whether it has evicted people for renovations or criminal nuisance , which state law continues to allow.