A $2B Bet on Demographics

The fund, currently at an estimated $2 billion, uses a strategy that follows demographics, not property types.

Alternative real asset investment manager Harrison Street with $56 billion assets under management, has devoted one fund, now at $2 billion and potentially expanding to $4 billion, with one focus on the growing 80-plus age range, according to PERE. And that’s going to mean senior housing.

The firm’s Harrison Street Real Estate Partners Fund IX, launched in 2022, had more than $1 billion by September 2023. The target is $3 billion, which would be its largest ever, and there’s a cap of $4 billion.

The Chicago-based firm told MarketWatch that instead of focusing on traditional property categories, it concentrates on demographics. In this case, the data says that the next few years will see an explosion of baby boomers in their 80s as new healthcare technology lets people live longer, which means a coming need for a lot more senior housing.

The National Investment Center estimates that there will be a need for at least 156,000 more units of senior housing by 2025, 549,000 by 2028, and 806,000 by 2030.

“With record-low construction starts observed in 2023, the projected gap between available and needed senior housing units will be significant,” NIC says. “Whether looking at the 75+ or 80+ population, this pattern emerges. When looking at the amount of capital that will be needed to support this population growth in inventory, by 2030, an industry-wide investment of $400 billion will be needed to complete the required new development to meet the anticipated demand,” they wrote. “Given the current pace of new development, it is estimated that only 40% of that investment need is currently on-pace to be fulfilled.”

Harrison Street chief executive officer and chairman Christopher Merrill told MarketWatch, “There’s an issue of where are we going to house people.”

Another maturity wave is loans coming due, with debt or liquidity issues that will potentially force many owners into distressed sales, providing buying opportunities for types of uses like senior housing.

PERE reported that Harrison Street has an internal rate of return target of 15% or more. The fund is one of the largest closed-end funds in the North American market.

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