Christopher Merrill (0:00 - 0:32)

So that's been one of our strengths is our DPI. And a lot of it has been, we've probably sold $6 billion last year. A lot of it has been -- what our play is don't get our funds too big. Let's do individual asset investing or development, highly fragmented 80, 85% of what we do is individual investment or development. And then 80 to 90% of our sales are portfolios, right?

So as these funds get larger and they want to get into student housing, or they wanted to get into self-storage, they're not going to do five and $10 million deals. So not only can we create value at the individual investment level, but then the portfolio creates great portfolio values. And so that's what we just did.

Nancy Lashine (0:33 - 3:00)

Hello, and thanks for tuning into Real Estate Capital. I'm your host, Nancy Lachine of Park Madison Partners. Capital is the lifeblood of the real estate industry, but the decisions on where and how it's allocated are driven by people and personalities.

Who are they? What motivates them? What can we learn from their experiences?

On this show, we introduce you to some of the real estate industry's most influential thought leaders and decision makers. And we talk about what is important to them, how they make critical decisions, who has influenced them, and a lot more. Our guest on today's episode is Christopher Merrill, co-founder and global CEO of Harrison Street Asset Management.

One of the world's largest investors in alternative assets. Chris founded Harrison Street in 2005 with seed capital from Michael Galvin of Motorola fame. Today, the firm manages over $109 billion across global real estate, infrastructure and private credit with over 600 employees stretching from Chicago to Singapore.

Chris's career began at Heitman, a Chicago-based real estate manager as a summer intern at 18 years old. And after only a few years, Heitman allowed Chris to go off to Europe to build out its real estate team there, making him one of the first institutional investors to break ground in the emerging markets of Central and Eastern Europe. After successfully building out Heitman's European business, Chris moved on to his next challenge, building an investment firm focused on alternative real estate assets, which was a fairly contrarian bet at the time.

Harrison Street has fundamentally shifted investor perception of alternative real estate, helping move sectors like student housing, senior housing, and medical office from the fringe to the mainstream of institutional portfolios. On this episode, we discuss Chris's motivations to leave an established firm like Heitman, to start his own business, the benefits of scale, the importance of experienced local operating partners, and how to build loyalty among your employees. Chris, well, I'm just in awe of you.

Thank you for doing this. I really appreciate it. Harrison Street is, you've gone from like this standing start, this entrepreneur started business, what, 20, 21 years ago?

Christopher Merrill (3:00 - 3:05)

Yeah, a little bit. Yes. 20 years, I say, but probably close to 21.

Nancy Lashine (3:05 - 3:10)

Yeah. To over a hundred billion dollars. What's the number now of AUM?

Christopher Merrill (3:10 - 3:11)

109.

Nancy Lashine (3:12 - 3:48)

Yeah. Well, it's kind of crazy.

I'm really hard pressed to think of someone else in our business who is an entrepreneur, who started out as a kid, you had a two handle in front of your age, started in the business and then started a business and you're still running it. And it's so large and global. And you've gone into all the things that we're doing, that we're all focused on in the real estate space, meaning real assets and high net worth and, global offices and the many things we'll talk about today. So I'm in awe.

Christopher Merrill (3:49 - 3:57)

Oh, you're too nice. I mean, I’ve been so lucky, and I've had so many people that have helped along the way. So, it's just been a lot of luck.

Nancy Lashine (3:58 - 4:04)

A lot of luck. Okay. Well, is that the pearl of wisdom for the day?

I think it's a little more than that.

Christopher Merrill (4:04 - 4:22)

Well, I don't know if it's the pearl of wisdom, but it's definitely, well, it certainly helped me. It's like I said, it's been a lot of fun, a lot of ups and downs, but there are so many people that have just been there for this journey that have helped, whether it's investors, employees, operating partners, et cetera.

Nancy Lashine (4:22 - 4:44)

So, you've talked a little bit on some other podcasts about your origin story and kind of how you got to Heitman. So, I'm going to kind of skip over that because there's so many other things to talk about and maybe just talk about why did you leave an established platform like Heitman where you had really just a great seat and huge opportunity there to start Harrison Street?

Christopher Merrill (4:46 - 5:48)

For me, Heitman gave me a start. I was a summer intern for many years there, had this crazy idea to move to Europe. I was the first employee to get moved to Europe with this idea of doing the first real estate fund for central Europe.

And it was nice. Heitman gave me the shot to try and do it. And I was just in an investment, I was an investment guy and, I went over and, it was a really interesting thesis. And I won't bore you with a thesis, but, as I started finding investors and opportunities in central Europe, I was sort of calling back to the state saying, okay, I found a building or I found an opportunity, send the money.

And it wasn't that easy. So it sort of forced me to go develop my own capital relationships and sort of, luckily, we put together the first fund in central Europe, did a second fund. And, the thesis really worked out. The cap rates compressed when they joined the European union and built a nice team and a business over there. And so, I think that kind of put the entrepreneurial bug in me.

Nancy Lashine (5:48 - 5:49)

Yeah.

Christopher Merrill (5:49 - 5:54)

And it allowed me to sort of build a culture. And I came back to the States and I said, boy, that was fun.

Nancy Lashine (5:54 - 5:59)

Wait, can we double click on that when you say build a culture? So you're in Poland primarily.

Christopher Merrill (6:00 - 6:19)

I was living in London. We had offices in Budapest, we had offices in Warsaw and built a team of, let's say 40 or 50 people. And like I said, Heitman was very supportive and it was fun because we were 3000 miles away and building a team and a culture. And it was really fun.

Nancy Lashine (6:19 - 6:24)

How did you know how to build your team? And you're a deal guy. How did you know how to build a culture?

Christopher Merrill (6:24 - 7:20)

I don't know. I mean, maybe it was common sense. Maybe it was, looking at how I wanted to be treated.

But I think for me, what I've really learned and I think why this Harrison street experiment has worked is if you get alignment of interest, right, it works. And I think so many people are missing that in this business and you really need to get alignment of interest right.

And so I really enjoyed doing that. And then when I came back to the States, I sort of missed it. I missed that sort of entrepreneurial.

I missed so much of what I did when I went to Europe was how did you do that? When I was doing central Europe, people thought, well, that doesn't make any sense. That's crazy.

That's never going to be an institutional market. It was a lot of fun trying to find the new. It’s hard in our business. It's so much of a commodity business.

It's hard to be different. It's hard to be unique, but I really loved it. And so that was what kind of put the bug in me to try and do it again.

Nancy Lashine (7:21 - 7:25)

So where did the idea of Harrison Street come from and how'd you get going?

Christopher Merrill (7:26 - 9:41)

So really, the idea was  what could I do to differentiate myself? I really wanted to start a business. I wanted to build a business. I wanted to build a culture, but how was I going to go compete in a very competitive business? So I looked at what worked in central Europe. It was fragmented asset classes.

Why central Europe worked for me was that there were only big European funds. People would dabble in central Europe. Maybe they'd put five or 10% of their fund in central Europe.

So I said, what if I'm the pure play central Europe guy? And that's how I started. I came back to the States and I sort of looked at it and said, where are their similarities?

And a lot of people were sort of dabbling in medical office or self-storage or maybe student, but nobody really had a pure play business around demographics. So I said, well, okay, what if I start and become the sort of pure play business around demographic assets where obviously you're not timing cycles or need-based asset, but they're smaller, they're fragmented. You got to roll up your sleeves.

You got to find good operating partners, et cetera. And that's where the idea really came from. It could be a way to create something different, unique, innovative that I thought was quite resilient.

But the challenge for me was I didn't have capital and I was probably 34 at the time. And so I was, again, when I talk about luck and timing: a gentleman who was a mentor of mine was the former chairman and CEO of Motorola. His family founded Motorola and he was leaving Motorola, setting up a family office.

And I was talking to him as I had been since I was 12. He was a mentor. I talked to him all the time.

And I said, well, I've got this idea around demographic real estate about being sort of this pure play investor in the space. And he said, boy, that's interesting. And we spent about a year talking about it.

And he said, listen, I'd love to partner with you and do that. What do you need? And I said, look, I've been a first-time fund before. I've gone through the consultant colonoscopies. What I need to do is really build a team. I want to start building a track record. And to me, that's the way to be successful. Blind funds are tough. And so, he really was great. And he gave me the capital to build a team and start making investments. And the way we went-

Nancy Lashine (9:41 - 9:44)

How much capital did it take in 2005 to build?

Christopher Merrill (9:45 - 9:55)

It was interesting. Our initial portfolio, we probably had invested $70, $80, $90 million in different products and different strategies really as a way to sort of prove up the thesis.

Nancy Lashine (9:56 - 9:58)

And then you syndicate out those deals to investors?

Christopher Merrill (9:59 - 10:31)

Yeah. Then what we did is we used those investments and we contributed them at cost in the first fund and had the first closing within sort of 12 months of starting. And that's sort of where the name Harrison Street came from.

We became partners and Motorola started on Harrison Street in Chicago. And so, what was fun for me, obviously his family founded Motorola. Innovation was near and dear to his heart.

And so for me, it was always this push on how can we innovate? How can we differentiate what we're doing? And so that's really how we got started.

Nancy Lashine (10:32 - 11:01)

The whole operating partner platforms, which clearly define the real estate investment business through the 90s and then the 2000s, kind of was key to your getting started. But it's evolved over time to managers building platforms where you own a piece of the operator who clearly is so key to having the skill set to be successful. How did you start and how have you evolved in that area?

Christopher Merrill (11:02 - 13:27)

So I think there's no right model. For me, when I looked at these fragmented sectors, there were certain risks that I didn't want to take. I didn't want LPs to be exposed to.

I didn't want to be exposed to recourse, cost overrun, entitlement. The idea was let's go find the best local operators and let's work with them and let's lay off certain risks. Also, the segments we're in, when you're in storage, student, senior, it's hard to find one group that's going to be great nationally.

I don't think that really exists in these spaces. As much as people even try today, say, I've got one partner and I can go build across the country. I don't think you can.

To me, what we like is I've got a great senior housing partner in the Northwest. I've got a great senior housing partner in Long Island. I've got one in the Northeast.

I've got a great student housing partner here. So, to me, I think in these more fragmented asset classes, if you're going to get scale diversification, if you're going to manage risk, you need to work with these operating partners. What we've done over time as we've evolved is we've become more integrated as a business.

I'd say we're almost a vertically integrated manager because we do everything up to property management and leasing. In some cases, we do some leasing. But we've built a team here that has construction, design, engineering.

We're bringing as much to bear in a lot of cases as the operators. But what I don't want to do is pre-development risk, entitlement risk, cost overrun risk. So, I like to say we're sort of almost in between that operator allocator model.

Because in a lot of cases, if there's a challenge, we can step in if we need be. We can move operators out if we need be. But what's interesting how we've also evolved is outside of the US, we're becoming more vertically integrated.

Whether it's in Canada or Europe, you don't have the depth of operating partner experience, balance sheets, et cetera. So, we've more created it in other markets. But I think that's part of the secret sauce for us is all these people are jumping into the space. We've been doing it for 20 some years. I feel like we've got the best local partners. So a lot of folks that are jumping in are going to make mistakes by working with groups that are new to the sector.

They haven't really dealt with senior housing operations before. They haven't dealt with student housing turn issues. So, for us, I think that's one of the benefits of our platform is just these decades of relationships.

We've been very lucky that we've had them.

Nancy Lashine (13:27 - 13:33)

Are your profit margins similar today as they would have been 15, 20 years ago?

Christopher Merrill (13:35 - 14:51)

It's a great question. I'd say as we've gotten larger, as you get more scale in this business, I'd say the margins can get better. But I'd also say things in the business are becoming more expensive.

The amount of investment in data is changing. The amount of investment in client service. We want to be closer to the clients. So, we have offices in Seoul and Tokyo in the Middle East.

Getting closer to the clients, client service, there's fee pressure. There's a lot of fee pressure. So, I think inherently, the margins in the business are getting tougher and tougher.

So, I'd say on one hand, you need the scale today. But at the same time, the challenges are people are expensive, data is expensive, fee pressure. It's not an easy business. It's a very challenging business. I think that's why you're seeing this monster consolidation. And I think that's the thing that I like about it is that's the easy button is just sell out. That's the consolidation. Let it happen. For me, I love the fact that we can keep building Harrison Street, and my differentiation can be alignment with you, the LP.

We're here at Harrison Street. We're not going anywhere. And while the rest of the industry is being consolidated, and the firms are getting bigger and bigger, it's leaving this middle market sort of wide open for us.

Nancy Lashine (14:52 - 15:03)

Yeah. So let's talk about how you found Colliers when you were looking for a capital partner, and why they were the right buyer, and then how the firm has grown since then.

Christopher Merrill (15:03 - 15:16)

Sure. So what was, it was interesting. They were more of a partner than a buyer.

I mean, what I was looking for in 2018, we were probably $14 or $15 billion of AUM. What I've constantly been looking for is- 

Nancy Lashine (15:16 - 15:24)

Wow, wait. That's wild. 2005 to 2018, you went from standing start to call it $15 billion in AUM.

Christopher Merrill (15:24 - 15:24)

Yeah.

Nancy Lashine (15:24 - 15:30)

2018 to 26, just eight years later, you've gone to $109 billion.

Christopher Merrill (15:30 - 18:35)

There's inorganic in there, and I'll walk you through that. So, the first stage was all organic. But for me, it's always been looking, where are the potential defects?

Where are the mistakes? Where are the challenges? So I was, I'd say I was, probably early 40s, 45 at the time.

And one of the challenges is I had a family that don't have the business. And that, for me, I was thinking more about what's longevity, right? What would happen if something happened to the family?

How can I start moving more equity to the next generation? I didn't want people to get the same bug I got, 12 guys walk in and walk out the door. So, I needed to think through an evergreen partner. I needed to think through, how do I move equity to the next generation? How do I need to create alignment of interest? So, what I was looking for was someone that could come in and help me do that.

I needed someone that would be more of a 60, 70% buyer because I had to buy the family out and I needed to move equity to the next generation. But I also wanted a partner that would let me keep building my culture. I didn't want someone that was going to sit on my management committee, sit on my investment committee.

And so, it was a bit of a unicorn I was looking for. I was looking for someone who was passive, but would be more of a majority in the business. So, it was lucky in the sense, again, another lucky situation was Colliers wanted to compete with a JLL or CBRE. They didn't have an investment management business.

So, they looked at it and said, boy, this would be a nice add to our business as we want to think about growing our investment management fee stream. So, it's controlled by one gentleman, a great guy by the name of Jay Hennick is the controlling shareholder of Colliers, had a great meeting with him. And it was tough because the Galvins are, you know, Chris Galvin is like a father to me.

And it was not an easy discussion, but the beauty of Chris is he recognized that it was the best for the business. And as much as he did not want to sell his interest, and he'd still love to have it. He recognized it was good for the people and good for our LPs. So he's just such an amazing man. Then he said, look, it's the right thing. Let's go ahead with the transaction.

So brought Colliers in, very much an evergreen partner. It let me move equity, let me move carry to the next generation. And that allowed us to continue to grow the business. And we always like to do first.

So we launched the first ever open-ended core strategy that was a hundred percent alternatives. And, so when I started the business and it was sort of, okay, we're going to be a hundred percent pure play. People like, what are you doing? Student housing, storage. How are you going to do this? There's no way you're going to get scale.

There's no way you're going to find partners. Then when I started the open-ended strategy, everyone said, well, core is the four main food groups. Core is not student, senior.

And I kept saying, look at how well these asset classes performed in the GFC and we can get better income. What better strategy in a core wrapper than these asset classes? And so, we've seen unbelievable growth in that product now.

And it's, I think one of the best open-ended strategies there is in the industry.

Nancy Lashine (18:35 - 18:38)

How big is that strategy today?

Christopher Merrill (18:38 - 19:10)

It's almost 14 to 15 billion of gross asset value. And it would take somebody, it would take someone a decade to replicate it. It's 450 assets and it's some of the best students, senior assets in the country.

And so, it's just had great product, but for me, we're always trying to create these first, recognizing demographics are outside the US expand, et cetera. We just kept growing the business organically. And then I can talk more about at the right time about how we added some other strategies.

And a lot of it was in some way inorganic.

Nancy Lashine (19:10 - 19:25)

Let's talk about the addition of, I know you've bought some businesses in, in Europe and consolidated them. And so, you've consolidated your European platform. And then I think you've also brought in the US you've brought Rockwood under the fold as well.

So let's talk about that.

Christopher Merrill (19:25 - 21:38)

So, yeah, we'll go through. So, what happened was from 2018 to 2022, Colliers was very pleased with the growth they saw within our business and recognized that they wanted to add other lines of business with an investor management. Jay, the chairman working with me went out to identify other businesses.

So identified Rockwood, traditional real estate, but has a very good debt business. Identified a firm called Versus, which is in the private wealth area, a firm called Basalt, which does infrastructure. What was interesting is those businesses were added under Colliers sort of side-by-side with me.

So, we all had our own businesses in partnership with Colliers. And I'd say over the past two, three, four years, I got to know the folks that ran those businesses very well. And we just spent a lot of time talking and, I looked at it and I said, okay, where's some white space for my firm?

Well, I was thinking about how do we want to get into private wealth. We were thinking about adding debt products to our platform. We have an open-ended infra again, we created one of the first open-ended infrastructure strategies around public to private partnerships with universities and health systems.

And so, we were in the infrastructure business. I wanted to add a closed end side of the infra business. So really sat down with the folks at each of those firms and said, look at, we have sort of common ownership.

Why not put our heads together and make one-plus-one seven? What's the point of us building, six different HR departments, compliance departments, Luxembourg's offices. Why not consolidate and give the best service to our clients and give them better product offerings, et cetera. So, we spent the past three or four years talking and sort of putting them all together under, frankly, Harrison Street, just because we were the largest. And so, we put them under one sort of umbrella, but really let the businesses run as is and let the investment companies run as is, but, put together more of a shared services model, client services model. And, now we've got great, to me, what's great is every product is very synergistic and they all help each other.

Nancy Lashine (21:38 - 21:42)

Do each of those businesses have their own IC and their own investment?

Christopher Merrill (21:43 - 22:34)

Yes. And no, some have now sort of merged in. So we've created it, what we've tried to do is take the best talent across the ecosystem and use them. So, the infrastructure business had some unbelievable talent. So let's put them on our open-ended infrastructure investment committee, but their infrastructure closed end strategies, we don't need to change.

So, what we tried to do is say, okay, where's the best talent? Where can we add the most value? And let's look at that as it relates to different committees for the business.

And now we look at, it's very simple. We're our 110 billion of AUM, North America, Europe, equity, debt, infrastructure, open and closed end strategies. And everything's very synergistic.

Everything is sort of mission critical real estate. Everything has an alternative twist to it. And so, it's been great. And now we've got upwards of a thousand LPs all over the globe.

Nancy Lashine (22:34 - 22:34)

Wow.

Christopher Merrill (22:34 - 22:51)

And for me, as investors want fewer relationships, we just want to be someone that's relevant to them that says: Hey, look, if you want to keep Harrison Street on the platform, hopefully they can offer unique products and across the capital structure.

Nancy Lashine (22:51 - 23:14)

You talked about early on alignment of interest as being really key when you went from central Europe to building your business here. What have you learned about alignment of interest as you've put all these businesses together in terms of motivating people and making sure that you gained as much as you can and don't lose anything in these combinations.

Christopher Merrill (23:14 - 23:54)

The key is, I mean, it was never a cash out situation. It was a let's all roll together. Let's all lock arms and let's be aligned with our investors on the outcome versus, let's all go sell our business and work for another company or have shares in a public business.

This was very much, let's get alignment right. Let's not, Oh, let's all still be meaningful owners of the business. Let's move equity to next generation.

Let's move, carry, let's provide facilities. So to me, the alignment is the big issue that I think a lot of investors and consultants focus on, but I think it's going to be more and more of a focus as you're seeing the consolidation out there. You're going to see a lot of turnover when firms are sold.

Nancy Lashine (23:54 - 23:54)

Yeah.

Christopher Merrill (23:54 - 24:50)

You're going to lose a lot of good folks and it's just going to happen. And so for us, that's where I can differentiate Harrison Street where I can have a broader ownership structure. I can be more aligned with the investors and the consultants.

And to me that's what works when your people are coming to your investment committee and they're approving deals that they have to put their own money in. And it means a lot to them. That's important.

Your asset managers, your client service folks: everybody's got to have skin in the game. If not, you're going to see turnover and you're going to see a lot of turnover. And as all this consolidation keeps going, I love it for me. It's a great opportunity to grow, go after great talent. We've added probably 40 or 50 people in the past 12 months. I'm adding great talent to the business because it's really an opportunity to say, okay, this is an entrepreneurial culture.

It's a family business. We say family first, we work hard, we have a lot of fun and we can do it different from a culture standpoint.

Nancy Lashine (24:50 - 25:05)

Can you give us a specific example like, like how you keep someone who wants a more entrepreneur, like someone comes into you and goes, Chris, I love you. You're a great man, but I got to go do my own thing. How do you keep someone like that?

Christopher Merrill (25:05 - 26:30)

What's your own thing? What do you want to do? You want to go work in our London office, go for it.

You want to go where you want to help us grow in Tokyo, go to our Tokyo office. You want to, you want to learn more about data centers. Why don't you work on our data center group?

So for me, it's what itch are you trying to scratch and why can't you do it here? Because that's what happened to me is I had the itch. I wanted to get drenched. So why can't I incubate that idea here. So tell me what that idea is. If it's, I want to be a school teacher. Well, I can't incubate that. But if they sayI want to go try this. Well, what is that? We had someone here who did a ton of research. A young gentleman wanted to expand and learn more about renewable energy and solar. And so we kind of moved him into our infrastructure business and he helped us, not only invest in the solar business, but we've put solar on the roofs of our storage.

So, we kind of do a lot of this innovation stuff here. And so, I try and because it's so near and dear to my heart. I try and make sure I'm talking to all of our key people about it, and I always want to try and scratch that itch for you here. If I can't, no harm, no foul, I get it. And so that's one thing the scale is allowing me to do. And the important thing I say to the younger folks as it gets bigger and I'm not as close to everyone -- I, just tell everyone you've got to advocate for yourself, raise your hand, jump up and down and wave and say, listen, I'm interested in doing something else.

I want to do this. I want to do that.

Nancy Lashine (26:31 - 26:31)

Right.

Christopher Merrill (26:31 - 26:48)

And that is one of my favorite things about this business. We had 30 interns this year. We have a lot of new people, I love that part of this business.

I love challenging people. I was given a lot of rope at a young age by Heitman, a ton. And so for me, it's a lot of fun to do that same thing.

Nancy Lashine (26:48 - 27:08)

Yeah, no, that resonates for me, for sure. I remember my first job in the investment management business, someone said to me: if there's something you want to do, like just raise your hand and, do it here. And like, when I heard that, because I came out of investment banking, I was like, really? And I never left the business after that. 

Christopher Merrill (27:08 - 27:15)

It’s fun. What people recognize is it's then hard to come up with that idea. I mean, it's sort of like-

Nancy Lashine (27:15 - 27:35)

Well, that's what I was going to ask you. Like you've clearly been a manager who's always been on the edge. You are early into student housing and senior housing and cold storage and all the things that are edge and what were edged 20 years ago.

So what is the new edge for you today?

Christopher Merrill (27:35 - 27:38)

I'll tell you, cause I try not to-

Nancy Lashine (27:38 - 27:40)

But then you'll have to kill me. No, please. 

Christopher Merrill (27:40 - 29:58)

No, I mean, the thing for us is deepening relationships.

So, what I think the edge in this business is, what are your relationships really? Because I think people talk about, I've got this exclusive off market deal. I did this and everyone's full of it, right?

So where are your relationships? Because that is your edge to access that's creating opportunity. So, one of the things that we are really doing is deepening relationships with universities and health systems.

So, we're one of the largest owners of off-campus student housing, largest owners of senior housing, medical properties. Let's go deep with those universities. We're now probably the largest investors in the public to private sector with universities and health systems.

So, we work with universities and we probably have 40 plus relationships with universities where we not only build them housing. We also then have said to these universities, why don't we help you with other real assets, power plant, wastewater treatment, whatever it might be. So, what we've done is develop relationships with these groups.

And then we bring in a great group to do the housing, or we bring in a great group to do the power plant or district energy. So, one of the things that we've tried to do, very quietly, we're doing this because it takes a lot of time is let's go develop a 50-year relationship with you. Now let's do, we're building the housing at University of Chicago and phase one, phase two, phase three. Or IIT will do their power plant. So that's been a fun way for us to really deepen our expertise, our relationships.

Now, if I'm the biggest owner operator of on-campus housing, well, that's great information if I'm going to do off-campus because what I'll see is a lot of people jumping into an off-campus deal and I'll be like, well, that's a mistake. I know that I'm building a ton of on-campus. And so, it just gives us an informational advantage.

So that's been a big expansion. We're doing some really interesting alternative investing in Canada. That's been a great market.

We're building a student housing vertical platform in Europe. We're doing some interesting things in European debt right now. I think we're trying to take these segments and just keep focusing on need-based asset and just kind of go deeper, whether it's across capital structure, whether it's geographies or whether it's the relationships with those partners.

Nancy Lashine (29:58 - 30:07)

Right. I'm curious how you pick the campuses. I mean, there's a prediction that what 15 or 20% of campuses or universities will fail. So how do you pick?

Christopher Merrill (30:07 - 31:48)

For our off-campus business, we've created a proprietary model we call H-PRISM. We've done, hundreds and hundreds of investments at universities over the past 20 years. And so, what we do is we have a very detailed model that we run everything through.

So, the simple thing is we're big, power four universities. We're not doing small, private colleges, very focused on what are the universities that are enrollment takers, where we've seen enrollment growth at the publics. But then within those publics, you've got to really understand the supply fundamentals, the supply dynamics.

People are jumping right now into student housing and they're going to get really  burned because they're going into markets that are going to be oversupplied. They're not in the right location, et cetera.  I think you really have to focus on which schools you think are going to be those enrollment takers.

How are they dealing with  international students. How are they dealing with AI? How are they doing with virtual learning? How are they dealing with commuter kids?

So, we kind of go through all those metrics and we do the same thing, like in senior housing, we have a model that kind of looks at income age qualifications. It's really, frankly because we've made mistakes and it's taking those lessons learned and saying, let's not repeat them.

I mean, no one likes to talk about their mistakes. I do. I mean, I try and bring them up a lot of times with investors and say, look, we've made mistakes in these sectors and I think those scars are making us stronger.

I mean, I tell our team, just lean into it. Everyone out there talks about how great they are and how every IRR is unbelievable. You got to be honest.

You got to be honest in your business and say, look, we've made mistakes, but look at how these mistakes are, frankly, making us stronger.

Nancy Lashine (31:49 - 31:56)

And you just sold a very large student housing portfolio. Is that just in your normal recycling process?

Christopher Merrill (31:56 - 32:14)

Actually, that's exactly what our strategy is. So we've probably, think about, to me, I think DPI is the new IRR, right? I think everyone's full of it when they look at their TVPIs.

They say their TVPI is this and their DPI is like nothing. And then you see as their fundraising cycles get down, you see their TVPI come down as they start realizing.

Nancy Lashine (32:15 - 32:19)

We should probably explain what TVPI and DPI are for our audience.

Christopher Merrill (32:19 - 32:47)

Yeah, I mean, obviously, DPI is just the money in your jeans. Let's put capital, let's give capital back to investors, right? That's the challenge right now.

And the TVPI is the sort of manufactured internal performance metric where people will say, this is my IRR. My IRR right now is X percent, but you've returned no money. And that's all internal valuations.

And as they then raise future funds, you see, as they have realizations, you see that number come down.

Nancy Lashine (32:48 - 32:52)

Can I quote you on DPI as the money in your jeans? I like that.

Christopher Merrill (32:52 - 33:53)

Sure. So that's been one of our strengths is our DPI. And a lot of it has been, we've probably sold $6 billion last year. A lot of it has been -- what our play is don't get our funds too big.

Let's do individual asset investing or development, highly fragmented, 80, 85% of what we do is individual investment or development. And then 80 to 90% of our sales are portfolios, right? So as these funds get larger and they want to get into student housing or they wanted to get into self-storage, they're not going to do $5 and $10 million deals.

So not only can we create value at the individual investment level, but then the portfolio creates great portfolio values. And so that's what we just did. We just put a bunch of our different operating partners together, put a portfolio of a dozen student housing assets and sold to a larger group.

And we've done that a ton of times. And that's, again, if our fund goes from $2 billion to $5 billion to $8 billion to $10 billion, we can't do that. So as funds get bigger and bigger, I love it because we'll go do the hard work and we'll sell to you.

Nancy Lashine (33:53 - 34:09)

So talk about how you're playing in the data center space because data centers, as we know, are such capital hogs. And I think you were quoted as saying something like you prefer powered shells over wildcatting. How do you play in that space given you want to keep your fund size as relatively small?

Christopher Merrill (34:09 - 35:40)

Yeah, so it's interesting. What we do is there's a couple of mission-critical assets, which  has been a big theme for us.

We started the data center space probably 12 years ago and it was mission-critical. So, we have a couple investments in our infrastructure business around mission-critical assets. The carrier hotels, very monopolistic, where everyone comes together in cities.

And there's a limited amount of those assets across the country. They're mission-critical. So, we have a number of those investments in our evergreen infrastructure strategy.

We also have a dark fiber business, a business that sort of connects the data centers in our infrastructure business. And then in our real estate business, we look at what I would say powered shells. And I almost equate it to a net lease business.

We're not in the business of buying land and trying to fight for power for seven or eight years. We're not going to go do something in the middle of nowhere that's AI related. If there is an opportunity where you've got entitlements, you have access to power, and we've got line of sight to a long-term lease to a hyperscaler, that's an investment we'll make.

It's very much a net lease type opportunity. And so that's probably, I'd say that's 10% or so of our business. So, it's not a big part of our business because we've got such a tight funnel in terms of how we look at it.

But, if we can find these right opportunities, we think it makes sense. But you got to be very careful. And I think there's going to be a lot of people burned with a lot land that they own that they can't get access to power.

And so, power is the big thing. And the deals are becoming so big. It's really amazing.

Nancy Lashine (35:42 - 35:44)

Where's the next wave of growth for Harrison Street?

Christopher Merrill (35:46 - 37:01)

I think that we want to keep getting better and better at what we're doing. I think the next wave of growth is really these demographics are global. So, we can continue to grow our business in Canada. We can continue to grow in Europe, potentially Asia. But I think for us, when you think about universities, it's a tremendous amount of deferred maintenance and the need for capital and the importance of education. As people are living longer, the need for senior housing, assisted memory care.

I just think within health care and education, there's just so much opportunity to really deepen those relationships. I think we're going to continue to do what we do and continue to look for mission critical investments. And the nice thing is we don't have any pressure on, okay, we've got to get this quarterly growth. We've got to get that quarterly growth.

We don't really have that pressure. It's really about, this sort of missing middle market that we can play in and, really just try and focus on performance and differentiating what we can offer, because we've just got to be relevant.

We want to be relevant. We don't want to just say: Hey, if you're invested with this manager, that's great. Let me show you how this complements that strategy.

We're not trying to have you replace. We're not trying to replace other managers. We're trying to compliment other managers.

Nancy Lashine (37:01 - 37:06)

Right. In the high-net-worth channel, I believe you launched the first ETF.

Christopher Merrill (37:06 - 38:07)

Oh yeah. We have an infrastructure ETF. Yeah.

So, we have a private wealth business that has a series of interval funds and, we launched an interesting ETF in the infrastructure space. It was new. It was unique. There's a big interest, obviously from the retail channel to get exposure to infrastructure which is not easy. And so that's been a nice product to add.

And now what's fun about having the private wealth business, again, it's a very small, it's probably three or four percent of our business right now. We're really working with how can we create really unique creative products to sort of target that retail community, that high-net-worth market, the RIAs, et cetera. And so, what's nice is that that market really understands education. They get healthcare.

And so, it's a nice story to tell the high-net-worth investor, since everyone's dealing with a loved one that's got health or memory issues. People are dealing with their kids going to school.

So, it really resonates on that sort of platform. So that's going to be a big area of growth for us over time. Right now it's a small part of our business.

Nancy Lashine (38:08 - 38:11)

Does the ETF invest in public or private securities?

Christopher Merrill (38:11 - 38:18)

It's in public infrastructure investments. And then we have an infrastructure strategy that will invest in private funds and direct deals.

Nancy Lashine (38:19 - 38:27)

Right. Well, I mean, having, being able to start launching in that high-net-worth channel will be an important growth engine for the business.

Christopher Merrill (38:27 - 38:44)

Yeah, it'll be interesting. We'll see what it does. There's no overly pressure on it.

It's, for us, how can we expand relationships with groups and offer access to products and structures that work for those. And that's what's fun about it.

Nancy Lashine (38:44 - 38:55)

Yeah. How do you organize now that you really are so global and have 600 people plus, how do you organize for culture and for alignment of the team?

Christopher Merrill (38:56 - 39:52)

Yeah. I mean, we have a great leadership team. aEch one of the businesses that came together has great leaders themselves.

Everyone's aligned on the culture and in the vision. And I think it's a lot of coming together. We try and communicate a lot.

You got to communicate a ton. I think it's a lot of communication on what we're doing, why we're doing it. I think it's really encouraging all the teams to get together all over the world and really spend time as a firm together.

And then I think, again, it's creating that alignment, creating financial alignments, creating growth opportunities. But, to me at the end of the day, it's communication, it's transparency. What are you doing? Why? I don't want to be a firm that the employees hear something, the news is on Bloomberg and then they find out, oh my gosh, the company's been sold or did something. And so, I think for me, you really have to communicate a lot.

And I think, we do a lot of town halls and, sometimes we probably over communicate in some cases, but I think that's the way you got to do it.

Nancy Lashine (39:52 - 39:57)

Do you share investment strategies across the different parts of the business?

Christopher Merrill (39:58 - 40:33)

For sure. I mean, that's the beauty of it is, frankly, we're not going to do a strategy unless it helps the other strategies. That's been the governor on what we do.

If the new strategy doesn't in some way help the platform, we won't do it. So that's kind of a governor itself. But if, okay, we've got an infrastructure strategy.

So now I can say to the university president, hey, we'll put your real estate here and we'll put this in the infrastructure strategy. Or, I can say to an operating partner, I have a debt strategy that can provide you debt financing now. So to me, it's again, creates us very sticky to all of these relationships, if you like.

Nancy Lashine (40:33 - 40:34)

Right.

Christopher Merrill (40:34 - 40:45)

And so that's always the governor. I say, how does that new product tell me where the synergies are now? And how is that helping?

Where's the informational advantage and where the opportunity that's creating, whether it's access or informational advantage?

Nancy Lashine (40:46 - 40:54)

You're still a really young guy. Do you ever think about legacy? What's important to you?

Christopher Merrill (40:55 - 42:39)

I do. It's interesting. The first time I started thinking about it's, one of my sons is really interested in the business and it was this summer.

He had a great internship. He's a young man, Charlie. He is going to be a junior in college and he had a great internship in real estate, not with me, with another firm and really learned about investing and development and cap rates and spent a lot of time with me this summer.

It was a lot of fun talking about the business. And it's the first time I started thinking, man, this is fun. This is fun.

And I do in the sense of there's so many people here and I don't want this culture to end. And so, I don't want it to be, okay, I get to a certain age and we sell the business and now everyone's working for an insurance company or something. I don't want that.

I do want this to be something that can continue to grow. I want people to be rewarded. You'd love to find a way to continue to innovate in the space.

It's very hard and, in the real asset space to innovate is really hard. So, trying to push that. So, to me, I would love this thing to keep going because it has been so rewarding for me and in a way where the rewarding part of the business is: you think of what you do every day, right?

You're investing for people's, in a lot of cases, people's pension funds, but how you're doing it, right? Watching what we were able to do during COVID, how we took care of people at the senior housing properties was really rewarding. I get notes from parents on: they're so happy with how their kid is doing.

Their student is doing, the universities and the safe, well, kept housing. And so, it's kind of fun. And so, I use those letters and stuff and I share them with the firm.

So, it's a kind of a rewarding business. You're doing this mission critical investing, which is kind of cool.

Nancy Lashine (42:41 - 43:24)

Chris, I started out by saying how impressed I am with you, but like, wow, it's so… Having watched probably hundreds of people try to launch businesses like this, you've managed to figure out how to do it in the truly entrepreneurial way and build something that's truly of scale and differentiated. So, you did that and you're still going at it. It's really fun to watch all the things you're doing.

And I think your movement into energy and digital has a lot more legs to it that we probably haven't even started seeing yet. And I'm curious to see what you'll end up doing in Asia. I know you've made some hires there and that's a whole new something.

Christopher Merrill (43:25 - 43:53)

Well, I would say Nancy, my partners have been, I mean, they're all a lot smarter than me and they're just great people. And we've had such a great team of folks that have been together. And then the other thing is the investors and the consultants have supported us since the beginning and they've continued to support us.

And I mean, how do you thank them for that? And so, for me, it's like the thanking is waking up every day and just say: Hey, we got to deliver. And we just had so many people that have helped and supported this thing that it's been amazing.

Nancy Lashine (43:53 - 43:58)

Yeah. Any words of advice for those college age kids who might be listening?

Christopher Merrill (43:59 - 44:54)

The one thing I do always say that, take it with a grain of salt, but I always tell the college folks, I always, when I sit down with our interns or analysts, is just be patient. If you want to be in this industry, your value is on having done things in repetition. And I think, for me, it's, if you find yourself with a good organization, you have good mentorship and you're being challenged, just stick it out.

And your value is that repetition. And so I always say, frankly, this is an industry, you just got to be patient. And, it will come, make sure you're at an organization where you have good mentorship and you're learning and you're being pushed. Raise your hand and ask for more.

But if you are, then don't worry about what your title is and jumping firm. So you can have a bigger title. Just be patient. For me, that works.

And I think that's what this industry is. It's repetition, it's doing things and seeing things. And that's where your value really comes out.

Nancy Lashine (44:55 - 44:58)

Amazing advice. I can't thank you enough, Chris, for doing this. Appreciate it.

Christopher Merrill (44:59 - 45:00)

You're so nice, Nancy, to have me.

Nancy Lashine (45:05 - 45:37)

I hope you enjoyed this episode of Real Estate Capital. Before you go, I have a quick favor to ask. We put a lot of thought and effort into this show and making sure we bring you insights from real estate leaders that you don't normally find in the mainstream media.

So, if you're enjoying this show, please remember to follow it on your favorite podcasting app. So, you never miss an episode. We'd also love for you to share it with others or give us a review on Apple podcasts, so others can find us.

Thanks again for tuning in. For more information about our firm, please visit our website at parkmadisonpartners.com