Harrison Street sells senior housing portfolio for $186m

The Chicago-based private equity real estate firm exited multiple investments made largely through its third fund.

Harrison Street Real Estate Capital has sold a 526-unit senior care portfolio for $186.3 million, according to a statement last week.

The Chicago-based private equity real estate firm partnered with Morningside House Senior Living, a Leesburg, Virginia-based senior housing operator, to assemble the Morningside House Mid-Atlantic Portfolio, according to the statement from broker CBRE. A subsidiary of real estate investment trust HCP purchased the portfolio, which comprises seven properties developed between 1993 and 2013 in Baltimore, Maryland and Washington, DC.

PERE understands that Harrison Street originally acquired its stakes in six of the seven assets in November 2010 via multiple transactions through Harrison Street Real Estate Partners III, while capital for the seventh asset came from a follow-on investment through Harrison Street Real Estate Partners IV in 2014. The ownership structure between Harrison Street and Morningside for the portfolio was not disclosed.

The firm closed its third opportunistic fund in 2010 on $595.5 million and its fourth fund in 2013 on $750 million, PERE previously reported. The Morningside House Mid-Atlantic Portfolio represented the second-largest investment from the third vehicle, according to sources with knowledge of the deal.

Investors in both Harrison Street funds included the Kansas Public Employees Retirement System, which allocated $30 million to the third opportunistic fund and $40 million to the fourth; and the San Francisco City Employees’ Retirement System (SFERS), which committed $25 million to the third fund and $50 million to the fourth, according to PERE data.

Harrison Street’s third fund had a 20.7 percent net internal rate of return and a 1.8x multiple as of December 31, according to SFERS’ most recent data. The fourth vehicle had a 1.3x multiple but did not have a return rate “due to negative current reported value and/or the amount of capital recycled by the fund.”

“Investing in and developing assisted living and memory care facilities requires significant operational knowledge and an intimate understanding of local market demographics,” Harrison Street co-founder Chris Merrill told PERE. “We have been able to leverage our significant experience investing in this sector to identify attractive opportunities and partner with best in class operators to generate returns for our investors.”

Harrison Street manages $11.5 billion in assets, according to a spokesman.