Harrison Street’s Christopher Merrill Discusses Joint Venture with Greystar to Recapitalize 6,850-Bed On-Campus Portfolio in Kentucky

Chicago-based Harrison Street recently acquired a minority interest in a portfolio of on-campus housing at the University of Kentucky in Lexington as part of a newly formed joint venture with Greystar Real Estate Partners. The investment is structured under a public-private partnership (P3) model in which Greystar will continue the day-to-day operation and management of the 6,850-bed portfolio in collaboration with the university. 

Christopher Merrill, Harrison Street’s co-founder, chairman and CEO, discussed the strategy behind the deal with Student Housing Business. What follows are his edited responses.   

Student Housing Business: Why does Harrison Street see an opportunity in the on-campus real estate sector? 

Christopher Merrill: Coming out of the Global Financial Crisis of 2007-2008, higher education enrollment expanded despite declining state appropriations, a logical outcome from the recession’s impact on employment. We also saw an acceleration of higher education and governmental acceptance of P3 transactions as a viable and attractive option. The sector has grown in volume and sophistication within the U.S. since that time, and we have already seen that current financial pressures have added fuel to the already robust organic expansion.

Monetization of assets within higher education was an active and growing industry prior to COVID-19, substantially driven by deferred maintenance, looming decarbonization targets, financial pressures and consideration of value for resources expended. Auxiliary or enterprise services and facilities such as housing, utilities, dining, parking, financial services, online program management, innovation districts and athletics are well-suited for private capital monetization and capital expenditure investment. Academic and other non-revenue facilities are better suited to P3 capital solutions for greenfield projects or substantial renovations.

Harrison Street launched its Social Infrastructure strategy specifically to offer a vehicle that would become an all-encompassing and asset-agnostic capital partner to higher education, healthcare and government users, so this is a trend that we have anticipated and invested in significantly to date.

SHB: In an SHB interview with Merrill in September, he alluded to investing further in the space. Is this the first step? Is more planned?

Merrill: We invested more than $7 billion in capital in 2020, about a third of that was in the student housing space, so we haven’t slowed down. In fact, we believe there will be an even greater need for capital in the education space as balance sheets are tightened and institutions face economic setbacks brought on by the pandemic. This goes for P3 projects at universities, where we have been very active, particularly in on-campus student housing and other social infrastructure projects. In fact, we have a number of exciting projects underway.

SHB: What did you like about the Kentucky portfolio? What about it made you comfortable with it? 

Merrill: Great school, great assets and great partners. For us to be comfortable doing a deal of this scale, we do a great deal of diligence and rely on our vast levels of data having been investing in the sector for more than 15 years. We look at enrollment statistics, demographics and a number of other factors.

We have a strong relationship with Greystar and consider the company a best-in-class partner. There aren’t a lot of firms who can step up and do this type of deal, provide a high level of certainty and we’re proud to be on the short list.

SHB: The news release on this deal says you are pursuing your P3 infrastructure strategy. Can you elaborate further on that and what you like about the P3 model?

Merrill: We view P3s as great opportunities to enhance long-term stakeholder value. The length of our P3 contracts are approximately 45 years, so it really enables us to be fully aligned with our university partners and ensure they have the resources to stay on the cutting edge, while providing our firm with stable and reliable cash flows. They also allow us to deepen our relationships in the sector. 

To date, Harrison Street has invested $2.6 billion in public to private partnerships serving education, healthcare and government users. The higher education P3 portfolio totals 14 colleges and universities and over $2 billion in assets under management.

SHB: Anything else you would like to discuss in regard to your partnership with Greystar or the on-campus sector? 

Merrill: We are committed to investing in critical, high-quality social infrastructure assets that can positively drive innovation and productivity for the communities they serve. Students should have access to accommodation that facilitates their academic experience. We look forward to expanding our partnerships with top-tier universities and leading institutions as we continue to identify and execute complex transactions regardless of the environment.