Harrison Street closes third fund

The Chicago-based firm specialising in student and senior housing has closed on nearly $600 million for its latest fund, almost $100 million more than its original target.

Harrison Street Real Estate Capital has held a final closing on its third opportunistic real estate fund. The fund, Harrison Street Real Estate Partners III, received total commitments of more than $595 million, exceeding its original goal of $500 million.

“We hit the hard cap and had to turn some folks away,” said Christopher Merrill, co-founder and chief executive of the Chicago-based real estate private equity firm. Investors in the fund, which held a second closing on $330 million in September, include US and European pension funds, insurance companies, endowments, foundations and family offices.

Merrill said the fund exceeded its target due to the stability of the properties it targets, which includes off-campus student housing, senior housing, medical office buildings and storage properties. “I think, if you look at these asset classes, they typically outperform others,” he explained. “Investors see good fundamentals. Plus, many of these assets deal with short-term leases, so you can re-price.”

Indeed, the asset classes that Harrison Street targets offer the ability to invest in properties with strong underlying drivers that exist in both up and down economic environments. “There's a good strong underlying demand for these asset classes,” Merrill said. “You're looking at real strong opportunities in the next 10 to 15 years in these markets.” The fund is targeting returns in the high teens.

According to Merrill, the $595 million in equity raised by Harrison Street translates to investment power of more than $2 billion when leverage is applied. And the fund is off to a quick start, having already invested $530 million of its firepower in 24 properties around the US. Investments include six Alzheimer's care facilitates around Washington, DC; senior housing communities in Oregon and Montana; a senior housing development outside of Houston; a boat storage facility across the Hudson River from Manhattan in Liberty State Park; medical office properties in Michigan and North Florida; and student housing properties at Oklahoma State University, the University of Michigan in Ann Arbor and the University of California at Riverside.

Fund III follows on the momentum of Fund I and Fund II, which raised $208 million and $430 million, respectively. Since its formation in August 2006, Harrison Street has raised more than $1.2 billion in third-party equity.