Background and Ownership Harrison Street Advisors, LLC, a Delaware limited liability company (“Harrison Street Advisors,”
“HSTA,” “we,” “us,” “our”), formed in May, 2011, provides investment management services to
open-end investment vehicles including Harrison Street Core Property Fund, L.P. (collectively
with the parallel vehicles and affiliated partners, the “Core Fund”) 1; Harrison Street Social
Infrastructure Fund, L.P. s (collectively with the parallel vehicles the “SIF Fund”), along with
certain separate accounts established by institutional investors.
The Core Fund is an open-end, commingled investment fund which targets primarily what we
believe to be stabilized investments in education, seniors housing, healthcare, storage properties,
life science buildings, and other real property-related investments. The Core Fund was formed in
the fall of 2011. The SIF Fund which launched in 2018 is an open-end, commingled investment
fund which targets infrastructure and real asset opportunities in the areas of education, healthcare,
government and utility investments. Real assets are primarily revenue generating assets which may
include operating facilities and equity and debt investments in businesses owning, operating and
financing infrastructure and utility assets. The HSTA-advised separate accounts may, among other
assets, target investments in education, seniors housing, healthcare, storage properties, and life
science buildings. HSTA provides asset management services to two closed-end opportunistic
European funds, Harrison Street European Partners, L.P. and Harrison Street European Partners
II, L.P. (collectively with parallel funds known as “European Funds”) which primarily target
student housing and residential real estate in the United Kingdom and Europe in addition to one
domestic closed-end fund , Harrison Street Real Estate Partners VII, L.P. and its parallel vehicles
(collectively “Fund VII”) which targets investments in education, healthcare and storage
properties. An affiliate of Harrison Street Advisors serves as the general partner (the “General
Partner”) in the various fund structures and separate accounts, as applicable. Due to the sector
focus across many of the vehicles, the descriptions in this Brochure of operations, services, fees,
investment strategies, risks and other matters referencing the Core Fund and Investors in the Core
Fund may apply substantively to these other HSTA clients. References in this Brochure to an “IA
Fund” or “Fund-clients” is to the Core Fund and the SIF Fund and their respective parallel vehicles
and affiliated partners, being investment advisory clients of the firm.
The sole owner of Harrison Street Advisors is Harrison Street Real Estate Capital, LLC, a
Delaware limited liability company (“HSRE”). The controlling owners of HSRE are Christopher
Merrill and Colliers Investment Management Holdings, LLC a wholly owned indirect subsidiary
of Colliers International Group Inc. (collectively “Colliers”). Colliers (NASDAQ and TSX: CIGI)
is a major global commercial real estate services business headquartered in Toronto, Canada, that
provides real estate advisory, management, brokerage and capital formation services to corporate
and institutional clients. Christopher Merrill, President and CEO of HSRE, Jay Hennick, Chairman
& CEO of Colliers and Zachary Michaud, Vice President of Colliers (together the “HSRE
1 Except as specifically indicated, all references in this Brochure to Core Fund include the Core Fund and all related
Parallel Vehicles, one of which is Luxembourg-based and has additional directors and a local investment manager,
and Harrison Street Core Property Fund F, L.P., an affiliated partner in the Core Fund that holds units in the Core
Fund received by it in exchange for real estate assets contributed to the Core Fund by its investors.
Controlling Principals”) are the members of the Board of Managers of HSRE. HSRE was formed
in 2005 and in addition to the investment vehicles discussed above is the sponsor of a series of
private closed-end U.S. real estate investment funds, two separate accounts and a joint venture
which invests solely in commercial real estate classes that are not in the education, seniors housing,
healthcare, storage and life science buildings sectors. Affiliates of Harrison Street Advisors serve
as the general partners of each of these investment vehicles.
HSRE has, as of December 31, 2018, in the aggregate, approximately $18 Billion of gross assets
under management (utilizing a conversion rate of US$1.1455 to €1.00 to convert European Fund
amounts to U.S. Dollars). HSRE Securities Advisors, LLC, a wholly-owned subsidiary of HSRE,
is a registered investment advisor which as of December 31, 2018 has approximately $5 Million
of gross regulatory assets under management. HSRE Securities Advisors, LLC, succeeded to the
business of Harrison Street Securities, LLC.
Investments Core Fund
Harrison Street Advisors targets investment opportunities in the education, healthcare and storage
sectors of the commercial real property market focusing primarily on: (i) student housing, both on
and off campus, and other education-related real estate investments; (ii) medical office buildings,
and other healthcare related real estate investments; (iii) seniors housing, including, but not limited
to independent living facilities, assisted living facilities and memory care facilities;
(iv) self-storage, boat storage, and marinas and (v) life science buildings (collectively the “Primary
Property Types”). For the Core Fund, the primary investment focus is on what we believe are
stabilized, income-producing investments that provide a combination of current income and
long-term growth and appreciation. Investments may be made by the Core Fund directly and
indirectly, including, without limitation, through joint ventures with operating partners and other
third parties. The Core Fund is authorized to purchase equity interests and debt instruments
secured by mortgages on Primary Property Types of real estate but only if such purchase is with
the intent to acquire the underlying properties. The geographic focus is throughout the United
States.
The General Partner has created and may create, in its discretion, Parallel Vehicles (including an
offshore investment vehicle and joint ventures with other investors) that will, for the most part,
invest proportionately in investments of the Core Fund on substantially the same terms and
conditions as the Core Fund. Harrison Street Advisors will provide investment management
services to the Parallel Vehicles, if any. See footnote 1 above.
HSTA commenced its investment advisory activities in November, 2011 following receipt by the
Core Fund of $100,000,000 of capital commitments (“Commitments”) from the Core Fund’s initial
limited partners. The Core Fund limited partners are referred to in this Brochure as “Investors”.
At December 31, 2018, the Core Fund had $5,241,648,863 of Commitments, of which
$4,414,598,863had been funded by Investors. The minimum Commitment for each Investor in
the Core Fund is $10 million, unless the General Partner accepts a lesser amount in its discretion.
Harrison Street Advisors has, as of December 31, 2018, a total of $8,634,755,670of Gross Asset
Value (“GAV” based on consolidated GAAP Investments in Real Estate, excluding investments
in unconsolidated joint ventures) of Core Fund properties under management, and the Core Fund
had $827,050,000 of uncalled Commitments.
SIF Fund
Harrison Street Advisors targets investment opportunities primarily in infrastructure and real assets
that support the education, healthcare, government and utility sectors (the “Target Sectors”)
including, but not limited to: (i) on-campus higher education housing and other education-related
infrastructure; (ii) healthcare and other healthcare-related real asset investments; (iii) public private
partnerships (P3’s) with local, state and federal governmental entities; and (iv) utility and energy-
related facility investments with universities, health systems, governments/municipalities and/or
other corporate users. SIF Fund investments may include real property assets, equity interest
in businesses in the Target Sector and debt instruments issued by businesses in the Target
Sector. The SIF Fund may also invest in new development, renovations and expansions of
other infrastructure assets with the intention of generating consistent income returns. The
General Partner of the SIF Fund has created and may create, in its discretion, parallel vehicles
(including an offshore investment vehicle and joint ventures with other investors) that will, for the
most part, invest proportionately in investments of the SIF Fund on substantially the same terms
and conditions as the SIF Fund. Harrison Street Advisors will provide investment management
services to the parallel vehicles, if any.
HSTA commenced its investment advisory activities on behalf of the SIF Fund in 2018. The SIF
Fund limited partners are referred to in this Brochure as “Investors”. At December 31, 2018, the
SIF Fund had $225,000,000 of Commitments, of which $72,670,000 had been funded by Investors.
The minimum Commitment for each Investor in the SIF Fund is $10 million, unless the General
Partner accepts a lesser amount in its discretion.
Harrison Street Advisors has, as of December 31, 2018, a total of $72,280,238of Gross Asset
Value (“GAV” based on consolidated GAAP Investments in Real Estate, excluding investments
in unconsolidated joint ventures) of SIF Fund properties under management, and the SIF Fund had
$152,330,000 of uncalled Commitments.
Separate Accounts
HSTA provides investment advisory services to certain separate accounts with institutional
investors. The separate accounts generally target investments in areas such as education,
healthcare and storage sectors as outlined by the specific account documents. In certain cases, the
separate accounts might invest alongside another investment vehicle sponsored by HSRE.
Description of Advisory Services As investment manager Harrison Street Advisors will:
1. Identify and recommend investment opportunities;
2. Participate in monitoring and evaluating the client’s investments;
3. Make recommendations regarding the financing, refinancing and/or sale of
investments;
4. Make recommendations regarding the short term investment of cash pending
distribution or reinvestment in real properties; and
5. Providing asset management services with respect to investments.
Investment advice is provided directly to the Core Fund, SIF Fund and any of their Parallel
Vehicles and not individually to Fund Investors or any Parallel Vehicle’s Investors. HSTA has
full discretionary authority with respect to investment decisions, and its advice with respect to the
Core Fund and SIF Fund is tailored according to the investment objectives, guidelines, restrictions,
and requirements as set forth in the Private Placement Memorandum and Limited Partnership
Agreement of the applicable IA Fund Client.
Please refer to the diversification restrictions discussed in Item 8 below.
Its advice to separate account clients is tailored according to the investment objectives, guidelines,
restrictions, and requirements presented in the investment management agreement and related
documents provided to HSTA by the client.
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Loss Methods of Analysis and Investment Strategies Core Fund
We target investment opportunities in the primary Property Types. With respect to the Core Fund,
we are authorized to make an investment in equity interests and debt instruments secured by
mortgages on Primary Property Types of real estate but only if the intent is to acquire the
underlying properties. The primary investment focus will be on what we believe to be stabilized,
income-producing investments that provide a combination of strong current income and long-term
growth and appreciation. On a limited basis, the Core Fund may invest in certain development
properties that, upon completion, are expected to be stabilized income-producing investments that
may provide a combination of strong current income and long-term growth and appreciation. The
Core Fund may participate in transactions with other HSRE-sponsored funds or separate accounts
to acquire Primary Property Types held in large portfolios.
The majority of the return from the Core Fund is expected to be realized from current operating
income, with a lesser portion of the return to be derived from asset value appreciation.
Investments may be made by the Core Fund or HSTA-advised separate account directly and
indirectly, including, without limitation, through joint ventures with operating partners and other
third parties.
The geographic focus of investments is throughout the United States or as defined in the governing
documents for the specific separate account or fund documents.
Because the Core Fund is an open-end fund, it will, from time to time, have significant cash
reserves. If the situation arises, we will advise the Core Fund on the investment of its cash reserves
in shares of money market funds.
We intend to primarily source potential Primary Property Type investments via our industry
relationships and our network of lenders, “mom & pop” owners, market contacts, existing
operating partners and potential new operating partners. While the focus is on building portfolios
via single property or small to medium-sized portfolio investments ranging in size from $30 to $50
million in equity commitments, the investment vehicles have, and may, in the future, acquire larger
properties or portfolios. The investment vehicles will generally seek out local or regional operators
to manage and lease the investment vehicle’s properties. In certain cases we will require or permit
an operator to co-invest alongside for stronger alignment.
SIF Fund
The investment objective of the SIF Fund is to generate stable, attractive, long-term, risk-adjusted
returns by investing in a portfolio of infrastructure and infrastructure-related assets.
The SIF Fund primarily targets investment opportunities in the following infrastructure and
infrastructure-related assets: (i) on-campus higher education housing and other education-related
infrastructure investments including, without limitation, dining halls, fitness centers, classrooms,
life science, administrative office space, hotels, data centers, parking and stadiums/athletics; (ii)
hospitals, healthcare office buildings and other healthcare related real asset investments; (iii)
public-private partnerships with governmental entities; and (iv) utility and energy-related
investments with universities, health systems, governments/ municipalities and/or corporate
counterparties including, but not limited to, water treatment systems, and power, electric, and
waste removal systems. The investment focus of the Fund is on making investments that HSTA
believes are high-quality income-producing investments in desirable locations with favorable
fundamentals and demographics. The SIF Fund may invest in new development, renovations and
expansions of other infrastructure assets with the intention of generating consistent income returns.
The SIF Fund generally seeks to make investments which HSTA believes exhibit one or more of
the following characteristics: (i) low correlation to GDP growth and overall economic cycles; (ii)
consistency and stability in underlying user demand; (iii) attractive income yields; and (iv) low
long-term total return volatility. The geographic focus of investments is North America.
Market Analysis Among other considerations, traditional market-specific real estate analysis and comparisons to
existing investments in targeted sectors is used to assess the risks and opportunities associated with
assets targeted for investment. A more macro approach is applied in evaluating the strengths and
weaknesses of potential real estate strategies and prospective operators. Real estate investment
risk associated with the various investments are assessed through thorough market research,
comparison to the performance of other assets held by the investment vehicle as well as affiliated
private real estate funds, and financial modeling. This includes an assessment of a property’s
underlying value. This assessment includes a critical review of an asset’s construction quality, the
functionality of its design, the quality of its tenants, and its capital expenditure history and
projected capital needs. It involves, as well, gauging the demand for such properties in the
submarket, the asset’s competitive advantages or disadvantages in its submarket, and the
submarket’s position within the broader market. Current or planned construction activity is
identified, both of competitive properties and of properties that may stimulate demand for the
subject property. Additionally, a proprietary set of variables that we believe should be present in
order for assets in the Primary Property Types to perform well are applied. For instance, when
considering a student housing investment, we evaluate enrollment, location, penetration ratio,
demographics, financial aid characteristics, commuter student presence, etc.
Assessing Operators and Joint Venture Partners We seek to form relationships with operators who possess considerable management and operating
capabilities, along with a well-formulated and well-defined business strategy. We evaluate many
factors of each prospective operator including its management organization and performance in
historical relationships with partners. In addition, we seek operators who are highly regarded, have
demonstrated expertise in a specific property type, and have experience in the specific investment
strategy being pursued.
In assessing prospective operators, particularly operators who become partners, we use a model
that we developed through years of joint venture investing. Specific items to be reviewed include
the operator’s: (i) capital structure and financial resources, (ii) strategic plan, and (iii) management
organization (i.e., leasing and operating team).
To the extent that the investment vehicle does not own 100% of the property, we endeavor to
structure the joint ventures so that the investment vehicle maintains control over major decisions
(e.g. sale, refinance major leases and changes in property management). We intend to structure
each joint venture to enable the investment vehicle to sell 100% of the real estate or its interest in
the joint venture at the appropriate time. We intend to clearly define the economic objectives of
the investment vehicle, its Investors and the operator in the manner in which decisions relating to
the operation and exit of investments are made throughout the life of the investment. Careful
attention is given to the value of any preferences or incentives that are part of the economic
structure of rewards. Consideration of any enhancement to the investment vehicle’s return
achieved through the use of leverage or investment structure is secondary, although these elements
are critically evaluated for their impact on the investment vehicle’s overall targeted return.
Financing/Leverage The amount of leverage that may be placed on investments is outlined in the specific investment
vehicle’s governing documents. In general, leverage occurs via property level debt, fund level
debt and lines of credit/subscription facilities.
With respect to the Core Fund, all of the Core Fund investments will not exceed 40% of the gross
value of its investments at the time of the borrowing unless the Core Fund’s Advisory Committee
approves a higher percentage. In addition, the Core Fund has a credit facility that may be used to
make investments and pay expenses and property costs in lieu of or in advance of the funding of
Investors’ Commitments. Please note that the use of a credit facility is not included in the leverage
test for the Core Fund with the exception of any principal balance that remains outstanding for
more than 90 days. The Core Fund expects to utilize fund-level institutionally placed term
financing rather than property level debt when possible.
The SIF Fund targets leverage of 40% of gross market value (“GMV”) not to exceed 60%. The
SIF Fund anticipates eventually obtaining a credit facility that may be used to make investments,
pay expenses and property costs in lieu of or in advance of the funding of Investors’ Commitments.
Please note that the use of a credit facility is not included in the leverage test for the SIF Fund with
the exception of any principal balance that remains outstanding for more than two quarters. The
SIF Fund expects to utilize a combination of fund level institutionally placed term financing and
property level debt.
Diversification The governing documents for each investment vehicle will outline a variety of investment
restrictions to allow for diversification.
Core Fund
As the Core Fund’s NAV exceeds $1 billion, the following restrictions shall apply (determined in
each case as of the date of each investment unless waived by the holders of a majority of the limited
partnership units of the Core Fund):
Not more than 40% of the Core Fund’s NAV shall be in any Primary Property Type;
Not more than 20% of the Core Fund’s NAV shall be in investments located in any single
metropolitan statistical area (“MSA and no more than 30% of the Fund’s NAV will be in
one designated MSA; and
Not more than 15% of the Core Fund’s NAV shall be made in any single investment.
SIF Fund
After the SIF Fund exceeds $2 billion of GMV, the following restrictions shall apply (determined
in each case as of the date of each investment unless waived by the holders of a majority of the
limited partnership units of the SIF Fund):
Not more than 15% of the SIF Fund’s GMV shall be made in any single investment;
Fund GMV attributable to any single user shall not exceed 30%; and
Not more than 50% of the Fund’s GMV can be invested in on-campus mitigated demand
student housing.
Material Risks of Loss While Harrison Street Advisors seeks to understand the risks involved in investment decisions, no
strategy is immune to risk. Investors in the IA Fund Clients, separate account clients or investors
in other investment vehicles sponsored by HSRE must understand that their capital is at risk of
loss even though it primarily invests in individual real estate assets and core strategies that typically
employ lower leverage, have more durable cash flows, and are in lower volatility markets.
In general, there can be no assurance that any strategy will achieve its investment objectives or
that the Investors or separate account clients will receive any return on, or the return of, their
invested capital. Investors and prospective investors and separate account clients should review
all risks associated with a potential investment and be prepared to bear any loss. Investors and
prospective investors in a Fund-client should review the detailed discussion of risks set forth in
the PPM.
General Investment Risks General Risks. The investment vehicles are subject to risks common to the ownership of real
estate, including: changes in general economic or local conditions, changes in tenant preferences
that reduce the attractiveness of the properties to tenants; fluctuation in occupancy rates, operating
expenses and rental schedules; costs associated with the need to periodically repair, renovate and
re-lease space; withdrawal of tenants and difficulty of replacing tenants; tenant defaults; tenant
bankruptcies; changes in supply or demand of competing properties in an area, such as an excess
supply resulting from over-building; changes in interest rates, zoning and other governmental
regulations and availability of mortgage funds that may render the sale of a property difficult or
unattractive; increases in maintenance, insurance and other operating costs, including real estate
taxes, associated with one or more properties, which may occur as other circumstances such as
market factors and competition cause a reduction in revenues from such properties; inflation;
changes in tax laws and rates; and impositions by governmental authorities.
Uncertain Economic Condition. In recent years credit markets have tightened, property
transaction volumes have slowed and real estate values have experienced significant downward
pressures. These factors have made the valuation of real estate and infrastructure asset investments
more difficult. Because there is significant uncertainty in the valuation of, and/or in the stability
of the value of certain of the possible investments, the fair values of such investments as reflected
in the results of operations may not reflect the prices that the investment vehicles would obtain if
such investments were actually sold. There can be no assurance that we will be able to make real
estate and infrastructure asset investments that will generate the targeted returns. The investment
vehicles may also be required to hold illiquid investments for several years before any disposition
can be effected.
Valuation Risks. We intend to cause each IA Fund Client investment to be externally valued by
an Appraisal Management Firm or Appraisal Firm performing a restricted appraisal in the three
quarters immediately following its acquisition. During the calendar quarter that marks the one
year anniversary of the date of acquisition, the investment will be valued by a third party appraiser
performing a full appraisal report. In each subsequent year, the asset will be appraised in a similar
fashion (i.e. for the quarter in which the anniversary of its original acquisition occurs, a third party
appraisal firm shall be engaged to perform a full appraisal and, for all other quarters, the Appraisal
Management Firm or Appraisal Firm shall perform a restricted appraisal. The valuation of the IA
Fund Clients’ investments will factor into the NAV of an Investor’s account which, in turn, is used
to determine our Management Fees, the value of limited partnership interests for investment and
redemption purposes. There can be no assurance that the valuation given to any property is
indicative of the amount that an unaffiliated third party would be willing to pay for such
investment. Valuation methodology and frequency will be outlined in the governing documents
for each investment vehicle.
Due Diligence and Analytic Risks. There is generally limited publicly-available information about
real properties, and infrastructure assets, and we must therefore rely on our own due diligence and
that of our affiliates. Should the pre-acquisition evaluation of the physical condition of a new
investment fail to detect certain defects or necessary repairs, the total investment cost could be
significantly higher than expected. Furthermore, should our estimates of the costs of improving,
repositioning or redeveloping an acquired property prove too low, or its estimates of the time
required to achieve occupancy prove too optimistic, the profitability of the investment may be
adversely affected.
Fixed and Variable Cost Risks. Many costs associated with a real estate and infrastructure
investment, such as debt service and real estate taxes, are not reduced even when a property is not
fully occupied or utilized, or other circumstances cause a reduction in income from the investment.
These fixed costs intensify the risk of a tenant default or an unanticipated delay in achieving
occupancy of a newly constructed or redeveloped property or re-letting a property upon lease
expiration. Some costs associated with a real estate investment, such as maintenance and repairs,
may be subject to cost increases beyond the control of the investment vehicle. Variable rate debt
in a time of rising interest rates could also result in unanticipated costs increases.
Interest rate hedging transactions entered into directly with counterparty is subject to the risk that
the counterparty will fail to perform its obligations in accordance with the agreed terms and
conditions of the transaction. A counterparty may become bankrupt or otherwise fail to perform
its obligations due to financial difficulties resulting in significant delays in obtaining any recovery
in a bankruptcy or other reorganization proceeding or no recovery in such circumstances.
Leverage Risks. The purchase price of each investment is expected to be partially financed.
Limitations of leverage are outlined in the governing documents of the investment vehicle. The
degree of leverage could have important consequences to investors, including limiting the ability
of the investment vehicle to obtain additional financing in the future for working capital, capital
expenditures, acquisitions, or other general purposes and making the investment vehicle more
vulnerable to a downturn in business or the economy generally. The investment vehicles can enter
into a credit facility in order to, among other things, acquire properties and infrastructure assets,
and pay expenses and property costs in lieu of or in advance of the funding of Investors’
Commitments. Please note that the use of a credit facility secured by Investor Commitments
impact on leverage ratios for the investment vehicle will be outlined in the specific governing
documents, in example for the Core Fund only balances outstanding longer than 90 days or two
quarters for the SIF Fund are included in the calculation.
Loan Default Risks. The mortgage loan documents for the properties will generally contain
customary covenants, such as requirements relating to the maintenance of the property securing
the debt, restrictions on pledging and creating other liens on the property, restrictions on incurring
additional indebtedness and restrictions on transactions with affiliates. Failure to make timely
payments of principal and interest on mortgage loans or to observe these loan covenants could
result in the declaration of a default by the lender. The consequences of a declaration of default
include foreclosure of the mortgage, resulting in loss of both the property and the income it
produces, the incurrence of substantial legal costs, the imposition of a deficiency judgment if the
foreclosure sale does not result in proceeds sufficient to satisfy the mortgage, and potential adverse
tax consequences to the Investors. A default under one loan could result in default under other
loans.
Refinancing Risks. Mortgage loans on an IA Fund Client’s properties may be subject to relatively
short maturities, which may require refinancing before the properties can be disposed. There is no
assurance that replacement financing can be obtained or, if it is obtained, those interest rates and
other terms would be as favorable as the original loan. Inability to refinance a loan on favorable
terms may compel the investment vehicle to attempt to dispose of the property or other properties
on terms less favorable than might be obtained at a later date. The ability to refinance a loan can
affect levels of cash available for redemptions of Units and purchase of new investments.
Investment Policies and Strategies. We may not meet the stated investment strategy and goals of
the Fund-client or separate account client, including cash distributions and overall return targets.
The General Partner has the right to vary from its strategy and policies if it determines it is in the
best interests of the Core Fund or as provided in other investment vehicle governing documents
Equity and Debt Instrument Investments. We may cause the Core Fund on the SIF Fund to
purchase equity interests or debt instruments secured by mortgages on Primary Property Type
investments with a view towards acquiring the subject property. We also cause the SIF Fund to
purchase equity interest, both preferred and common, in, and make loans (secured and unsecured)
to businesses that own, operate, lease, and finance businesses in the Target Sector. In the event
that the Core Fund or the SIF Fund, as applicable is not able to complete the desired property
acquisition, it may need to liquidate its investment in the equity interests or debt instruments.
There can be no assurance that it will be able to liquidate such investments in an orderly fashion
or without incurring a loss.
Joint Venture Risks. Instead of making investments directly, the investment vehicles may make
investments through joint ventures or other entities. Such investments may involve risks not
present in wholly-owned investments, including for example, the possibility that a partner of the
investment vehicle might commit fraud, become bankrupt or may have economic or business
interests or goals which are inconsistent with those of the investment vehicle, or that such partner
may be in a position to take action contrary to the instructions or the requests of the investment
vehicle or contrary to the policies or objectives or otherwise have certain rights with respect to the
investments, which may limit the ability to protect its position and make decisions with respect to
its investments. In addition, in certain circumstances, the investment vehicle may rely upon the
operating partner for operational expertise, which reliance may ultimately not be justified.
Furthermore, if an operating partner defaults on its funding obligations, it may be difficult for the
investment vehicle to make up the shortfall from other sources. Any default by an operating
partner could have an adverse effect on the investment vehicle, its assets, and the interests of the
Investors. In addition, the investment vehicle may be liable for actions of its partners. While we
will attempt to limit the liability of the investment vehicle by reviewing qualifications and previous
experience of operating partners, such action may not be sufficient to protect from liability or loss.
Competition with Operating Partners. Operating Partners may, subject to certain limitations,
invest in properties that may compete with properties owned directly or indirectly by the
investment vehicle. The operating partners also may provide management and other services to
other properties located within or near the market areas where the properties are located, and may
at times face conflicts of interests because of the competition for tenants between the investment
vehicle’s properties and the properties of such operating partners and/or their other clients. The
operating partners and their affiliates may not favor the leasing of a property over the leasing of
other properties, one or more of which may be in close proximity to an investment vehicle’s
property. HSRE has right of first opportunity agreements with many operating partners of the SIF
Fund to participate in investments that meet SIF Fund investment objectives. If the SIF Fund
declines an opportunity, the operating partner may pursue the opportunity alone or with another
partner.
Tenant Default and Bankruptcy. A tenant’s default in performing its lease obligations, or the
tenant’s bankruptcy, could adversely affect cash flow from a real estate investment and cause the
investment vehicle to incur legal costs and other costs that would not likely be recouped. An early
termination of a lease by a bankrupt tenant would result in unanticipated expenses to re-let the
premises.
Non-Renewal of Leases. Real estate investments will be subject to the risk that, upon expiration,
leases for space may not be renewed, the space may not be re-leased, or the terms of renewal or
re-lease, including the cost of required renovations or concessions, may be less favorable than
current lease terms. In the event of any of these circumstances, cash flow from real estate
investments and, therefore, the value of an investment could be adversely affected. These risks
may be particularly acute for single-tenant properties.
Investments in Debt Instruments. Based upon the applicable state law (which laws may differ
substantially from state to state), investments in debt may be adversely affected by (i) the operation
of state law with respect to the ability to foreclose mortgage loans or to exercise other creditors’
rights provided in the underlying loan documents, (ii) lender liability with respect to the
negotiation, administration, collection and/or foreclosure of mortgage loans, (iii) penalties for
violations of state usury limitations and (iv) the impact of bankruptcy law.
REIT Risks. The Core Fund, along with other investment vehicles, holds or may hold its Primary
Property Type investments through a subsidiary (“Subsidiary REIT”) that is a real estate
investment trust (“REIT”). The investment vehicles may be limited in making and structuring its
investments in order to maintain REIT status for its Subsidiary REIT.
Investor Failure to Fund Commitments. If an Investor fails to fund its Commitment obligations
when due, the ability to complete its investment program or otherwise to continue operations may
be substantially impaired. A default by one or more Investors who have made Commitments could
limit opportunities for investment diversification and reduce returns to the investment vehicle.
Illiquidity of Interests. Investors should be aware of the long-term nature of an investment in the
Core Fund or other investment vehicles. There is not now and may not ever be a public market
for the units of limited partnership interests in the Core Fund (“Units”) or other investment vehicle.
Because the Units have not been registered under the Securities Act of 1933 (“Securities Act”) or
under the securities laws of any state or non-United States jurisdiction, the Units are “restricted
securities” and cannot be resold in the United States except as permitted under the Securities Act
and applicable state securities laws, pursuant to registration thereunder or exemption from such
registration. It is not presently contemplated that registration under the Securities Act or other
securities laws will ever be effected. The Units may also not be sold or otherwise transferred
without the consent of the General Partner and compliance with the various investment vehicles
governing documents such as the Core Fund Limited Partnership Agreement. Accordingly, an
Investor may not be able to liquidate its investment in the event of an emergency or for any other
reason, and its Units may not be acceptable as collateral for loans. Limitations on the transfer of
the Units may also adversely affect the price that an Investor might be able to obtain for Units in
a private sale.
No Assurance of Liquidity to Permit Redemptions. Although all Investors have the right to request
redemption of their Units in an IA Fund after a lock-up period, the IA Fund (i) may not have
sufficient available cash to fund the redemption of Units when redemptions are requested, or
(ii) may exercise its discretion to not permit redemption of Units. There is no guarantee that cash
will be available at any particular time to fund a particular redemption request, and the IA Fund is
under no obligation to make such cash immediately available through the sale of assets, acceptance
of new Investor Commitments, borrowings or otherwise. In addition, the IA Fund’s compliance
with the United States federal income tax rules applicable to REITs may affect the IA Fund’s
ability to satisfy a redemption request. Under the IA Fund’s redemption policy as set forth in its
Limited Partnership Agreement, any redemptions will be made using available redemption
proceeds (i) first, to satisfy any redemption requests from a prior quarter that were not satisfied in
full on a pro rata basis in proportion to the total number of Units owned by the Investors who
submitted redemption requests with respect to such earlier redemption date and (ii) secondly to
fund redemption requests submitted by Investors for the current redemption date on a pro rata
basis on the total number of Units owned by Investors seeking redemption. Redemption ability, if
any, and procedures are outlined in the governing documents of the other investment vehicles.
Cyber Security Risk. With the increased use of technologies such as the Internet to conduct
business, Harrison Street Advisors, the investment vehicles and properties are susceptible to
operational, information security and related risks. In general, cyber incidents can result from
deliberate attacks or unintentional events and can lead to the misappropriation or corruption of
Fund, Investor and property related data. Cyber security failures or breaches by a third party
service provider can cause disruptions and impact business operations and violations of applicable
privacy and other laws. HSRE has taken and continues to take steps that it deems commercially
reasonable to mitigate the risk of a cyber-security failure or breach.
Risks Associated with Primary Property Types In addition to the general risks of investing in real estate, each of the Primary Property Types has
specific risks.
Generally. While we believe that each of the Primary Property Types has attractive demographics
and characteristics, such demographics and characteristics may change materially, which could
materially and adversely affect the investment vehicles operating results.
Student Housing. Student housing properties face significant competition from university-owned
student housing and from other private student housing communities located within close
proximity to universities. Many students prefer on-campus housing because of the closer physical
proximity to campus and the integration of on-campus facilities into the academic community.
Universities can generally avoid real estate taxes and borrow funds at lower interest rates.
Consequently, universities can often offer more convenient and/or less expensive student housing
than private operators of student housing, which can adversely impact occupancy and rental rates.
Finally, student housing properties usually require greater maintenance costs because of increased
damage or wear and tear than would apply to other types of housing, and usually have a higher
turnover rate than would apply to other types of multifamily properties, compounded by the fact
that in some instances student leases are available for periods of less than 12 months. All these
factors combine to produce heightened uncertainty with respect to predicting cash flows generated
by student housing.
Senior Housing. The success of assisted-living and other seniors housing depends in large part on
success in attracting elderly senior citizens with the ability to pay for the services they receive.
While a portion of the fees payable by residents of seniors housing facilities may be reimbursed
by government and private payors, many such facilities are substantially dependent on the ability
of the residents and their families to pay directly. In addition, some payors, such as Medicare,
limit the number of days for which payment will be made in some settings, such as skilled nursing
facilities, and most payors limit the types of services for which payment will be made and/or the
amount paid for each particular service. Finally, the healthcare industry in the U.S. is highly
regulated by Federal, State, provincial and local licensing requirements, facility inspections,
reimbursement policies, regulations concerning capital and other expenditures, certification
requirements and other laws, regulations and rules. The failure of an operator to comply with such
laws, requirements and regulations could affect an operator’s ability to operate the senior housing
facilities that the investment vehicle owns.
Medical Office Buildings (“MOBs”)
Competition for MOBs. The investment vehicles may compete with a significant number of other
entities for acquisitions of MOBs and healthcare-related facilities. The competition for healthcare
real estate properties may significantly increase the price for MOBs and healthcare-related
facilities or other real estate related assets sought to be acquired. In addition, potential acquisition
targets may find the competitors to be more attractive because they may have greater resources,
may be willing to pay more for the properties, or may have a more compatible operating
philosophy. In particular, large healthcare REITs may enjoy significant competitive advantages
that result from, among other things, a lower cost of capital and enhanced operating efficiencies.
This competition will result in increased demand for these assets and therefore increased prices
paid for them. Because of an increased interest in single-property acquisitions among
tax-motivated individual purchasers, the investment vehicle may pay higher prices if it purchases
single properties in comparison with portfolio acquisitions.
Customization of MOBs. MOBs are typically highly customized and may not be easily adapted to
non-healthcare-related uses. A new or replacement operator or tenant may require different
features in a property, depending on that operator’s or tenant’s particular operations. If a current
operator or tenant is unable to pay rent and vacates a property, the property owner may incur
substantial expenditures to modify a property before it is able to secure another operator or tenant.
Also, if the property needs to be renovated to accommodate multiple operators or tenants, the
property owner may incur substantial expenditures before it is able to re-lease the space. These
expenditures or renovations may have a material adverse effect on operations and the ability to
make distributions to Investors.
Healthcare Regulation. The healthcare industry is heavily regulated by U.S. Federal, State and
local governmental bodies. The tenants in healthcare assets generally will be subject to laws and
regulations covering, among other things, licensure, certification for participation in government
programs and relationships with physicians and other referral sources, and the privacy and security
of individually identifiable health information. New laws and regulations, changes in existing
laws and regulations or changes in the interpretation of such laws or regulations could negatively
affect the financial condition of the tenants. These changes, in some cases, could apply
retroactively. The enactment, timing or effect of legislative or regulatory changes cannot be
predicted. In addition, certain of the MOBs and healthcare-related facilities and their tenants may
require licenses or certificates of need to operate. Failure to obtain a license or certificate of need,
or loss of a required license would prevent a facility from operating in the manner intended. These
events could adversely affect the tenants’ ability to make rent payments, which may have a material
adverse effect on operations and the ability to make distributions to Investors.
Storage. The self-storage market contains low barriers to entry. Due to the short-term nature of
self-storage leases, storage properties also may be subject to more volatility in terms of supply and
demand than other types of properties. In addition, because of the construction utilized in
connection with certain self-storage facilities, it might be difficult or costly to convert such a
facility to an alternative use. Thus, the liquidation value of these properties may be substantially
less than would otherwise be the case if the property were readily adaptable to other uses. Finally,
it is difficult to assess the environmental risks posed by such facilities due to tenant privacy,
anonymity and unsupervised access to such facilities. Therefore, such facilities may pose
additional environmental risks that could adversely affect the value of the investments.
Life Science Buildings. Life science building tenants require significant outlays of funds for the
research and development and clinical testing of their products and technologies and many of them
have a history of recurring losses. The current economic environment has significantly impacted
the ability of these companies to access the capital markets, including both equity financing and
debt financing. If sources of funding are unavailable to support such development, a life science
tenant’s business may fail.
The research and development, clinical testing, manufacture and marketing of tenants’ products
may require federal, state and foreign regulatory approvals. The approval process is typically long,
expensive and uncertain. One or all of their products may fail to obtain the required regulatory
approvals on a timely basis or at all. If a product fails to receive the required approvals at any
stage of development, it could significantly adversely affect the tenant’s entire business.
Legislation to reform the U.S. healthcare system may include government intervention in product
pricing and other changes that adversely affect reimbursement for life science tenants’ marketable
products. In addition, sales of such tenants’ marketable products may be dependent on the
availability and extent of reimbursement from government health administration authorities,
private health insurers and other organizations. Changes in government regulations, price controls
or third-party payors’ reimbursement policies may reduce reimbursement for tenants’ marketable
products and adversely impact the tenants’ businesses. Any of these events could adversely affect
the tenants’ ability to make rent payments, which may have a material adverse effect on operations
and the ability to make distributions to Investors.
Healthcare Infrastructure Projects
Competition for Healthcare Infrastructure Projects. The Fund will compete with many other
entities for acquisitions of healthcare infrastructure projects and healthcare-related facilities,
including national, regional and local operators, acquirers and developers of healthcare real estate
properties. The competition for healthcare infrastructure properties may significantly increase the
price for healthcare infrastructure projects and healthcare-related facilities or other related assets
the SIF Fund seeks to acquire, and competitors may succeed in acquiring those properties or assets
themselves. In addition, potential acquisition targets may find the SIF Fund’s competitors to be
more attractive because they may have greater resources, may be willing to pay more for the
properties or may have a more compatible operating philosophy. In particular, large healthcare
REITs may enjoy significant competitive advantages that result from, among other things, a lower
cost of capital and enhanced operating efficiencies. This competition will result in increased
demand for these assets and therefore increased prices paid for them. Because of an increased
interest in single-property acquisitions among tax-motivated individual purchasers, the Fund may
pay higher prices if it purchases single properties in comparison with portfolio acquisitions.
Customization of Healthcare Infrastructure Projects. Healthcare infrastructure projects are
typically highly customized and may not be easily adapted to non-healthcare-related uses. A new
or replacement operator or tenant may require different features in a property, depending on that
operator’s or tenant’s particular operations. If a current operator or tenant is unable to pay rent
and vacates a property, the SIF Fund may incur substantial expenditures to modify a property
before it is able to secure another operator or tenant. Also, if the property needs to be renovated
to accommodate multiple operators or tenants, the SIF Fund may incur substantial expenditures
before it is able to re-lease the space. These expenditures or renovations may have a material
adverse effect on the Fund’s operations and the ability to make distributions to Investors.
Healthcare Regulation. The healthcare industry is heavily regulated by U.S. Federal, State and
local governmental bodies. The IA Fund’s tenants in healthcare assets generally will be subject to
laws and regulations covering, among other things, licensure, certification for participation in
government programs and relationships with physicians and other referral sources, and the privacy
and security of individually identifiable health information. New laws and regulations, changes in
existing laws and regulations or changes in the interpretation of such laws or regulations could
negatively affect the financial condition of the IA Fund’s tenants. These changes, in some cases,
could apply retroactively. The enactment, timing or effect of legislative or regulatory changes
cannot be predicted. In addition, certain of the SIF Fund’s healthcare infrastructure projects and
healthcare-related facilities and their tenants may require licenses or certificates of need to operate.
Failure to obtain a license or certificate of need, or loss of a required license, would prevent a
facility from operating in the manner intended. These events could adversely affect the SIF Fund’s
tenants’ ability to make rent payments to the SIF Fund, which may have a material adverse effect
on the SIF Fund’s operations and the ability to make distributions to Investors.
Innovation Districts and Life Science Buildings. Innovation districts and life science properties
require significant outlays of capital for the research and development and clinical testing of the
tenants’ products and technologies and many of them have a history of recurring losses. The
current economic environment has significantly impacted the ability of these companies to access
the capital markets, including both equity financing and debt financing. Federal and State
budgetary constraints may adversely affect a tenant obtaining government support of its research
and development efforts. If sources of funding are unavailable to support a tenant’s research and
development activities, the tenant’s business may fail.
The research and development, clinical testing, manufacture and marketing of tenants’ products
may require Federal, State and foreign regulatory approvals. The approval process is typically
long, expensive and uncertain. One or all of their products may fail to obtain the required
regulatory approvals on a timely basis or at all. If a product fails to receive the required approvals
at any stage of development, it could significantly adversely affect the tenant’s entire business.
Legislation to reform the U.S. healthcare infrastructure project system may include government
intervention in product pricing and other changes that adversely affect reimbursement for tenants’
marketable products. In addition, sales of tenants’ marketable products may be dependent on the
availability and extent of reimbursement from government health administration authorities,
private health insurers and other organizations. Changes in government regulations, price controls
or third-party payors’ reimbursement policies may reduce reimbursement for tenants’ marketable
products and adversely impact the tenants’ businesses. Any of these events could adversely affect
the Fund’s tenants’ ability to make rent payments to the Fund, which may have a material adverse
effect on the Fund’s operations and the ability to make distributions to Investors.
Utilities/Energy. The SIF Fund may invest in utilities, energy and energy-related investments
including, but not limited to, water treatment systems, power, electric and waste removal
systems. These types of investments are subject to extensive regulation from multiple federal,
state and local agencies, including regulation under energy (including specific regulation of
electricity and natural gas related activities), environmental, health and safety laws, regulations
and permitting requirements. Complying with all applicable regulation can be complicated and
costly, and changes in such regulation could increase such complexity and cost. Failure to comply
with all applicable regulation could have a material adverse effect on Fund performance.
Data Centers. An IA Fund may invest in data centers, which depend on providing users with
highly reliable service, including with respect to power supply, physical security and maintenance
of environmental conditions. Failure to provide such service could result from numerous factors,
including mechanical failure, power outage, human error, physical or electronic security breaches,
war, terrorism and related conflicts or similar events worldwide, fire, earthquake, hurricane, flood
and other natural disasters, sabotage and vandalism. In addition, security breaches or other
disruption of a data center could result in, among other things, unauthorized access to such
facilities, a breach of user networks and information technology infrastructure, and the
misappropriation of user’s proprietary or confidential information. Depending on the terms of the
lease or partnership agreement with the user of the data center, any failure to meet agreed service
levels, or damages relating to any security breaches or disruptions, could subject the Fund to
liability under our lease or partnership terms.
Risks of Development Activities. The Core Fund may invest in new development, renovation and
expansions of Target Sector projects that are intended to generate consistent income returns from
the outset. The SIF Fund may also invest in new development, renovations and expansions of
infrastructure projects in the Target Sectors with the intention of generating consistent income
returns. Such development activities will generally have a higher degree of risk when compared
to investments in existing income generating projects. Risks associated with development
activities may include: (i) material and labor shortages, (ii) increases in the costs of labor and
materials; (iii) rising energy costs; (iv) strikes; (v) adverse weather; (vi) earthquakes and other
“force majeure” events; (vii) changes in building plans and specifications; (viii) zoning,
entitlement and regulatory concerns, including changes in laws, regulations, elected officials and
government staff; and (ix) delays caused by any of the foregoing (which could result in
unanticipated increased costs, the expiration of permits, unforeseen changes in laws, regulations,
elected officials and government staff, and losses due to market timing of any sale that is delayed).
Delays in completing any development project will cause corresponding delays in the receipt of
operating income and, consequently, the distribution of any cash flow with respect to such project.
Conflicts of Interest
An investment in an IA Fund Client or other investment vehicle involves a number of inherent or
potential conflicts of interest, which prospective investors should carefully consider before
subscribing for Units. Among other things, Investors should note HSTA is an affiliate of the
General Partner and it will receive Management Fees based on the NAV of the IA Fund which, in
turn, will be affected by the performance of the fund assets.
The Core Fund or the SIF Fund or an affiliate of the General Partner may make investments in
operating partners or the operating companies of operating partners. In such event, the applicable
Fund or an affiliate will own an interest in an investment at the property level and the operating
partner level, which may create conflicts of interest.
HSRE is the sponsor of a series of closed-end real estate funds investing in the same Primary
Property Types in the United States and a separate account investing real estate other than the
Primary Property Types. Officers and employees of HSRE have economic interests in HSRE-
sponsored funds (other than the IA Fund Clients) and in certain separate accounts. While the
investment objectives of the Core Fund or other investment vehicles may differ from the other
HSRE-sponsored funds and accounts (i.e., the Core Fund will not purchase vacant land or
undertake a new development where we do not expect to generate stabilized income producing
returns upon completion), and investment opportunities targeted by the Core Fund are not likely
to overlap with investment opportunities targeted by the other HSRE-sponsored funds and
accounts, investment opportunities may be sought by more than one of the HSRE-sponsored funds
and accounts if the funds on account are within the investment period. In addition, Harrison Street
Advisors may serve as investment advisor to one or more separate accounts. Thus, conflicts of
interest may arise in the allocation of investment opportunities between the IA Fund Clients, any
HSRE-sponsored fund or account or any HSTA-advised separate account that is operating within
its investment period. If a particular investment would be appropriate for one of the IA Fund
Clients, one or more HSRE sponsored funds or accounts, or any HSTA-advised separate account
the investment will be allocated by the HSRE Allocations Committee according to the allocation
and rotation policy with a rotation list maintained by the Chief Compliance Officer. Our allocation
will depend on our determination of all relevant factors such as investment objectives and cash
availability. Whether an investment is approved is determined by the investment committee of
Harrison Street Advisors or the investment committee of the HSRE sponsored fund or account.
HSRE does not anticipate causing HSRE-sponsored funds to engage in any cross transactions. In
the event that a Fund intends to purchase an investment from, or sell an investment to, another
HSRE-sponsored fund, Harrison Street Advisors will first verify that the investment meets the
investment strategy of the specific Fund and is in the best interests of the Fund. The transaction
price will be supported by a fair market valuation (or fairness opinion) made by an independent
appraiser. Harrison Street Advisors will provide appropriate due diligence information to the
Advisory Committee of the Core Fund and will not close a cross transaction without the consent
of the Advisory Committee of the Core Fund (which is authorized to seek the advice of an
independent professional). Similarly, HSRE will obtain consent from the advisory committee of
the HSRE-sponsored fund from which the asset will be sold. Written information regarding cross
transactions will be provided to the limited partners of the Fund. Neither Harrison Street Advisors
nor any of its affiliates will be paid broker’s commissions or similar compensation from a cross
transaction. However, it is possible that a cross transaction will result in incentive compensation
being paid to an HSRE affiliate from a selling HSRE-sponsored fund.
In the event that a Fund or a HSTA-advised separate account has opportunities to participate with
another HSRE-sponsored fund to acquire a portfolio of Primary Property Type assets, the
Allocation Committee of HSRE will first identify any of the portfolio properties that meet the
investment strategy of the Core Fund or HSTA-advised separate account and the Investment
Committee of the Fund, or the separate account client, if applicable, will determine whether or not
the acquisition of the identified properties is in the best interest of the Fund or such client. The
allocation of the transaction price will take into account appropriate physical, financial and market
factors in consultation with the appraisal management firm, brokers and other market participants.
Information regarding the portfolio acquisition will be provided to the limited partners of the Fund
in a quarterly report.
The officers and employees of HSRE also provide services to the HSRE-sponsored U.S.
closed-end real estate investment funds, a separate account and the Europe funds, as well as to
other businesses and investments. Those persons may devote significant time in the future to the
management of their other existing investments and professional activities, although certain
executives of HSRE will devote substantially all of their business activities to the IA Fund Clients
and HSTA-advised separate accounts, except for any time devoted to the other HSRE-sponsored
funds and any future HSRE-sponsored funds.
No restrictions are placed upon HSRE or its affiliates with respect to existing real estate
investments or non-real estate investments that are not owned by the IA Fund Client. Further,
HSRE, the General Partner and/or their affiliates, principals and senior executives may purchase
property that meets the IA Fund Clients and HSTA-advised separate accounts’ investment criteria
in order to complete a like-kind exchange with respect to any properties owned by HSRE, the
General Partner and/or their affiliates, principals and senior executives.
Harrison Street Advisors may, in certain instances, cause a Fund and an asset management client
or separate account client to form a joint venture to acquire, finance and own specifically identified
Primary Property Type assets. In such instance, the other client may compensate HSTA at rates
that differ from the NAV-based fees paid by the Fund. HSTA will only form such joint ventures
when it believes that the transaction is in the best interest of both clients.
Neither HSRE nor any affiliate of HSRE is prohibited from purchasing for its own account a
Primary Property Type investment at any time that the HSRE/Harrison Street Advisors investment
committee determines that the Fund does not have sufficient capital and resources to purchase the
Primary Property Type asset for its own account.
Colliers, among other business activities, represents corporate and institutional investors in the
purchase and sale of commercial properties of all classes, and provides property and asset
management and capital formation services to owners of commercial properties, of commercial
real estate and owners of commercial properties. Conflicts may arise in the event Colliers and
HSTA are representing opposite parties to a Primary Property Type sales transaction, the
designation of Colliers as a property or asset manager to a property owned by a HSTA client, or
in the engagement of Colliers as a placement agent of debt or equity of a HSTA client. In this
regard, Colliers serves as a marketer in Europe and in Canada of Units in various HSRE-sponsored
funds for which it receives fees, paid by the General Partner and not the investor.
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