Talk about a niche investment.
Harrison Street Real Estate Capital LLC last month snapped up a senior housing portfolio, in part, with capital from its $2 billion open-end fund, the only one aimed solely at investing in education, senior living and storage.
Senior housing is a fragmented sector due to the small size of each investment so portfolios do not come along that often, said Christopher Merrill, co-founder, president and CEO of Harrison Street, Chicago.
Harrison Street's 2½-year-old open-end fund, Harrison Street Core Property Partners LP, and its $750 million private equity-style closed-end fund, Harrison Street Real Estate Partners IV, helped pay the $520 million price tag. Harrison Street Core Property Partners is the only open-end fund in the National Council of Real Estate Investment Fiduciaries database that invests exclusively in the three niche property types, said Jeffrey R. Havsy, NCREIF's director of research, in an e-mail.
Firm executives divided up the portfolio between the two funds based on the risk of each investment, Mr. Merrill said. Eight of the 11 properties in the portfolio — which had a blended occupancy rate of 96% — were purchased by the open-end fund, which invests in core properties. The remaining three properties all need improvements and occupancy and so were allocated to Harrison Street's closed-end fund, which makes opportunistic investments, he said.
However, firm executives do not intend to sell those properties to its core, open-end fund when they are stabilized.
“We stay away from potential conflicts,” Mr. Merrill said.