July 24, 2008
By: Dees Stribling, Midwest Correspondent

Chicago-based Harrison Street Real Capital has closed on a new private equity fund after raising about $430 million. Harrison Street Real Estate Partners II L.P., as the fund is known, began raising capital in March, and according to Christopher Merrill (pictured), co-founder and managing principle of Harrison Street, a good number of investors were keen on getting in on the fund.

"Certain investors are very interested in the focus of the fund," Merrill told CPN. "We've structured it -- and this has been our strategy since founding the first fund -- to invest in properties that will do relatively well in tougher times."

In other words, the thrust of the fund's investment strategy is to focus on "recession resistant" categories of real estate, including student and seniors housing, medical office and other healthcare properties, and self-storage and boat storage.

There are more than 40 investors in the fund, including both domestic and European pension funds, insurance companies, endowments and foundations. One particularly large participant, the Arizona Public Safety Pension Retirement System, has committed $80 million to the fund, including an additional $45 million for co-investments.

Since the inception of the fund, it has already assembled a portfolio of over $500 million in real estate assets utilizing about 30 percent of the fund's equity and debt financing from over 20 lenders.

"There used to be more competition for assets, most of it from highly leveraged buyers," said Merrill. "But they're out of the game. It isn't easy to assemble this kind of portfolio, but it isn't nearly as difficult as it was a few years ago."

Moreover, he added, finding debt financing hasn't been as arduous as might be expected. "That's because we're borrowing more conservatively, at 60 percent to 75 percent loan to values," he said. "And because the individual deals are relatively small, the lenders typically keep them on their books, avoiding the concern of re-selling them."

Properties that the fund has acquired thus far include student housing at both Arizona State University and the University of Denver, along with student housing near UNC Chapel Hill, the University of South Carolina and Texas State University. In the medical office realm, the fund has picked up properties in southern California, Virginia, suburban Kansas City and Phoenix. It has also bought a boat storage facility in Ft. Lauderdale.

When fully invested, the company expects the fund to own and manage a portfolio of about $1.7 billion. Founded three years ago, Harrison Street currently manages about $1.3 billion in real estate assets.

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