Harrison Street closes eighth opportunity fund on $2bn

The close is a record for the Chicago-based firm, which is expanding into data centers and single-family rentals with its latest vehicle.

Real estate alternatives specialist Harrison Street Real Estate Capital closed its eighth opportunistic fund on $2 billion, PERE has learned.

Harrison Street Real Estate Partners VIII hit its hard-cap, exceeding its $1.5 billion target, and is the Chicago-based manager’s largest closed-end fund to date. The firm also raised more than half a billion dollars for related co-investment vehicles, giving it roughly $8 billion of buying power when factoring in debt.

Merrill: resilience underpins demand for niche real estate.

The firm’s longstanding focus on niche property types such as student housing, medical offices and life sciences facilities positioned it to capture skyrocketing demand from investors for those sectors, Christopher Merrill, Harrison Street’s co-founder and chief executive told PERE. Harrison Street has raised just shy of $7 billion for its various open- and closed-end funds since the pandemic began.

“We witnessed how well our assets performed after the global financial crisis, this really propelled a lot of the interest in our sectors and our continued innovation since then,” he said. “We’re seeing that again now. These asset classes are very resilient given their strong demographics and needs-based nature.”

To further capitalize on institutional capital’s appetite for alternative real estate, Harrison Street has added a pair of newly popular sectors to the remit of HSREP VIII: data centers and build-to-rent single-family homes.

While a handful of large, listed groups have historically dominated the data center and rental home industries, Merrill said there is a lot of fragmentation in both segments, which creates the opportunities for consolidation and leaves an opening for new entrants.

“The key benefit for us has been the ability to really refine our investment funnel: diving into the micro aspects of each asset class,” he said.

Merrill said Harrison Street has both leaned on its internal data and brought in sector specialists to facilitate its expansion into new sectors. One example of this is Michael Hochanadel who was hired last year as a managing director and head of digital real estate. The former JLL executive arrived at Harrison Street having closed $2 billion of transaction involving various types of data centers throughout the US and Europe. Since the pandemic began the firm has made more than 40 new hires.

Merrill said Harrison Street will aim to allocate 50 percent of HSREP VIII to healthcare-related properties, including medical offices, lab space and senior housing. Student housing alone will make up roughly a quarter of the fund and the remainder of the capital will be split between data centers, self-storage facilities and single-family rentals.

So far, the firm has committed more than half of the capital raised for HSREP VIII to 76 properties, some of which have been acquired, others of which are under contract.

The fund enjoyed strong support from repeat investors, with 75 percent of HSREP VIII coming from re-ups, including a $75 million commitment from the New Mexico Public Employees Retirement Association and $150 million commitment from the Teachers’ Retirement System of Texas. The Texas pension also committed $100 million to co-investment sidecar, as it did for HSREP VII.

Other commitments include $100 million for the Korean Teachers’ Credit Union, $125 million from the Virginia Retirement System and $150 million from the Oregon State Treasury, according to PERE data.