University of Chicago along 57th street, view of vine covered gothic buildings

Harrison Street Real Estate Capital has raised $425 million for its open-end fund targeting real estate and infrastructure assets owned by colleges, hospitals and municipalities.

Known as Harrison Street Social Infrastructure, the fund has invested $220 million in public-private partnerships, according to sources familiar with the vehicle. Investments include a student housing development on the University of Chicago’s campus and renewable energy infrastructure.

Aiming to provide capital to public institutions that own properties – such as dormitories, healthcare facilities and power plants – that need capital improvements, HSSI is an extension of the Chicago-based manager’s core strategies: off-campus student accommodations, senior housing and medical offices. Harrison Street co-founder and chief executive Christopher Merrill said the firm saw an opportunity arise from the financial constraints many public institutions are facing.

Christopher Merrill, co-founder and chief executive of Harrison Street.

“There’s a lot of deferred maintenance within these systems and in order to maintain the right credit ratings, they don’t want to keep borrowing,” he told PERE. “What they can do is form a private partnership with a firm like Harrison Street and set up a very long-dated relationship where we can work with them over the next 20-30 years when they need capital.”

Harrison Street will partner with third parties to improve assets and then lease them back to their selling institutions through master lease agreements and offtake agreements – in which a property owner agrees to sell an asset before it is constructed. For its ground-up development of the Woodlawn Residential Commons, a 1,200-bed student housing complex on the University of Chicago campus, it has a joint venture with Alabama-based Capstone Development Partners, a student housing specialist. Harrison Street will finance the project while Capstone will build and manage it.

Other projects in the works include investments in wind, solar and combined heat and electricity utilities, as well as a wastewater treatment facility, PERE understands.

In February, the Texas Municipal Retirement System committed $200 million to HSSI, citing its prior investment history with the manager and the fact that the vehicle was among the few open-end infrastructure funds in the market.

Merrill said HSSI is one of the few funds targeting small- and mid-market infrastructure investments, with most vehicles pursuing larger assets. He also pointed to the firm’s extensive relationships with schools and medical centers, having invested alongside more than 170 such institutions since 2005.

So far, the firm has identified a pipeline of $5.6 billion in investment opportunities that fall within the fund’s mandate. Merrill said it aims to help institutions and municipalities meet carbon neutral goals as part of a broader focus on environmental, social and governance issues.

“ESG is a big theme across our asset classes but we think our social infrastructure strategy in particular really touches on that aspect,” he said. “ESG is an important process to have in your investing strategy and the structure we have it in also has been able to generate profitable returns, which is a positive.”

Harrison Street has appointed Jim Hennessey managing director in charge of the social infrastructure team. A former associate vice-president for commercial real estate at the University of Chicago, he has 25 years of public-private partnership experience. The team also includes vice-president of infrastructure acquisitions Carolyn Arida, formerly of GE, and vice-president of transactions Michael Leonczyk, who has originated over $600 million in investments since joining the firm in 2016.