Harrison Street launches its largest European fund yet

Chicago-based real estate manager Harrison Street has launched the fourth fund in its Europe-focused opportunistic series.

The firm, which occupies 31st position in the PERE 100 ranking of the industry’s largest managers by capital raised, is said to be approaching a first close for Harrison Street European Property Partners IV.

Harrison Street declined to comment on the fundraise, but an SEC filing issued last week shows the firm is looking to raise €1.5 billion for the fund. PERE data shows the firm raised €800 million for the previous fund in the series, Harrison Street European Property Partners III, which closed in February 2022, surpassing a target of €750 million. PERE understands Harrison Street is targeting a net IRR of 15 percent-plus for Fund IV.

By target size, Fund IV is the third-largest Europe-only closed-end private real estate fund launched so far this year, per PERE data. It sits behind Blackstone Real Estate Partners Europe VII, which is targeting €9.5 billion, and Aviva Investors Real Estate Active LTAF, which is looking to raise £1.5 billion ($1.9 billion; €1.8 billion).

Harrison Street specializes in alternative real estate across its global portfolio, which amounts to approximately €60 billion in assets under management. With this fund, it is understood the firm will invest in similar asset types to the predecessor funds in the series, which include student accommodation, life sciences, build-to-rent housing, senior housing and healthcare properties. Target markets include the UK, Ireland, Spain, Germany, France and Italy.

The US manager entered the European real estate market in 2015, and has since grown its AUM in the region to approximately €7 billion. Earlier this year, Harrison Street opened an office in Luxembourg – its fourth in Europe – and in July hired Alexis Gisselbrecht as managing director to lead the portfolio management function for the region and oversee the performance of the firm’s European vehicles. Gisselbrecht is based in London and a former senior fund manager for real assets at French investor AXA Investment Managers.

PERE understands Harrison Street’s third fund in its European opportunistic series is more than 90 percent deployed.

Amid an overall slowdown in deal activity this year, Harrison Street has continued to actively transact in the region. Notable recent deals include a partnership with Irish investment firm Elkstone to deliver 1,500 purpose-built student beds across Ireland, and the funding of the £302 million build-to-rent development at Moda Living’s Great Charles Street in Birmingham, UK in a joint venture with UK manager Apache Capital and insurer NFU Mutual. At £300 million, the latter was the largest single-asset funding deal in the UK outside of London, according to broker Knight Frank.

Speaking to PERE about the current opportunity set in Europe, Christopher Merrill, co-founder, chairman and chief executive of Harrison Street, said the market fundamentals for alternative real estate in the region have never been stronger. “There’s a tremendous lack of supply, great demand, enrollments are up in many universities, and we are seeing an aging population.”

In addition to opportunities for development across Europe, Merrill is “also seeing situations where we can redevelop assets,” such as properties where the prior owner faced some distress in the capital structure or with the operating partner.

He added: “It’s just an excellent time to be investing in the alternative segments. Pricing is favorable, we’re seeing very solid risk-adjusted returns on assets now, we’ve seen very constant year-over-year growth in rental revenue, and yields are very attractive.”