AGING AMERICA: The real estate sector investors are TARGETING now

Key Concepts

• Demand-Driven Assets: Real estate investments focused on essential services like education, healthcare, and digital infrastructure.
• Proprietary Scorecard: A data-driven model used by Harrison Street to evaluate university fundamentals and investment viability.
• Aging-in-Place: A philosophy in senior housing design that allows individuals to remain in a familiar environment while receiving necessary care.
• Hyper-scale Users: Large-scale cloud and technology companies that drive the primary demand for data center capacity.
• Power Constraints: The primary bottleneck in data center development, referring to the difficulty in securing sufficient electrical grid capacity.

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1. Major Portfolio Transaction

Harrison Street Asset Management recently executed the largest student housing portfolio sale of the year, valued at $910 million. The transaction involved 12 properties across 10 states and 12 universities, totaling over 7,000 beds. The buyers were affiliates of The Scion Group and a global institutional investment manager.

2. Investment Strategy and Methodology

Christopher Merrell, Chairman and CEO, emphasized that the firm’s strategy is built on a 20-year track record of investing in over 250 universities.

• The Proprietary Scorecard: To mitigate risk, the firm utilizes a proprietary model to assess:
  • University fundamentals and cost of education.
  • Local economic conditions.
  • Commuter patterns and financial aid availability.
  • Optimal unit mix for the specific student population.
• Operational Focus: The firm prioritizes partnering with high-quality local operators to drive asset performance and ensure the property functions as an "extension of the family" in the case of senior housing.

3. Sector-Specific Insights

Student Housing

• Focus on Public Universities: The firm targets resilient, large-scale public institutions (e.g., University of Michigan, University of Texas, Arizona State University) due to their proven ability to maintain enrollment growth through economic downturns, including the Global Financial Crisis and the COVID-19 pandemic.
• Supply Constraints: A significant "choking off" of new supply in the student housing market creates a favorable environment for existing asset owners.

Senior Housing and Healthcare

• Demographic Tailwinds: With 80,000 seniors turning 80 every month, the demand for independent, assisted, and memory care facilities is at record levels.
• Supply Gap: Merrell notes that the industry is currently delivering only 30–40% of the annual required capacity, predicting a significant shortage within five years.
• Medical Infrastructure: The firm is heavily invested in medical office spaces, driven by the trend that 80% of medical procedures now occur outside of traditional hospital settings.

Data Centers

• Capital vs. Infrastructure: While capital is available, the primary barrier to entry is access to power.
• Risk Mitigation: Harrison Street refuses to invest in data center projects without a clear "line of sight" to power availability and a secured "off-take" agreement with a high-quality tenant.

4. Key Arguments and Perspectives

• Resilience of Essential Assets: Merrell argues that education and healthcare infrastructure are "demand-type assets" that remain stable regardless of broader economic cycles.
• Infrastructure as a Long-term Play: The firm views the next 10 to 20 years as a prime investment window, citing the critical need for renewable energy, district energy, and social infrastructure.
• Global Scalability: Because demographic shifts (aging populations and the need for education) are global phenomena, Harrison Street has successfully expanded its operations into Canada and Europe.

5. Notable Quotes

• "When you think of the choking off of supply... and the aging population, it's a great time to put capital to work." — Christopher Merrell
• "Senior housing doesn't replace the family; it's an extension of the family if you do it right." — Christopher Merrell
• "People take a lot of risks hoping they'll get power, and that's going to take years... that's something that we need to solve." — Christopher Merrell

6. Synthesis

Harrison Street Asset Management’s success is predicated on identifying "essential" real estate sectors—specifically student housing, senior care, and data centers—that are supported by powerful, long-term demographic trends. By combining a rigorous, data-driven selection process (the proprietary scorecard) with a focus on operational excellence, the firm mitigates the risks associated with supply-constrained markets. The firm’s outlook remains bullish for the next two decades, as they continue to prioritize infrastructure that addresses the fundamental needs of an aging and increasingly digital global population.