Colliers International Group Inc. (CIGI-T) will spend up to $550 million US to acquire a 75 per cent interest in Harrison Street Real Estate Capital LLC. The Chicago-based real estate investment firm focuses on the education, healthcare and storage sectors and has approximately $14.6 billion in assets under management.
“The investment in Harrison Street is transformational and the most significant in our history,” said Jay Hennick, chairman and CEO of Colliers International, in a release announcing the deal. “The transaction establishes us as one of the major players in global real estate investment management, providing an important new growth platform that also facilitates the integration of our existing operations in Europe.”
Under the terms of the deal announced Monday morning, Colliers will purchase 75 per cent of Harrison Street from its founders for $450 million, with an additional $100 million payable in 2022, if the company achieves “certain accelerated performance targets.”
Harrison managers keep 25 per cent stake
The senior management team of Harrison Street will hold the balance of the equity.
“Our entrepreneurial operating and partnership philosophy aligns perfectly with Harrison Street,” said Hennick in the release, “which brings an exceptional group of leaders to our organization and a company recognized by Pension and Investments as a best place to work in money management for the past four consecutive years.”
The transaction, which Colliers says is fully financed and remains subject to customary closing conditions, is expected to close by the third quarter of 2018.
Harrison Street, which also has an office in London, is a pioneer in demographic-based real estate investing. The firm has established a series of investment products across multiple risk/return strategies, originating and managing a series of open and closed-end real estate investment funds and liquid securities.
Harrison Street investors include sovereign wealth funds, public and corporate pension funds, endowments, insurance companies, foundations and family offices.
Why Colliers likes Harrison Street
Colliers expects the annual run rate for management fee revenue to be between $100-115 million.
“In addition to its best-in-class returns, we were particularly attracted to Harrison Street’s focus on attractive real estate asset class strategies; massive segments offering significant, demographically driven growth opportunities with defensive cycle characteristics,” said John Friedrichsen, chief financial officer of Colliers International, in the release.
“The recurring management fees and institutional quality reporting and governance offers Colliers another stable and recurring source of revenue and a tremendous opportunity to create value in the future.”
Harrison Street’s co-founder and chief executive officer, Christopher Merrill, will serve as CEO, lead the operations and remains the largest individual shareholder. Harrison Street’s senior management team will continue to operate the firm’s day-to-day business.
“As we began to explore the idea of partnering with an outside investor to position us for the future, it became clear Colliers was a perfect choice,” said Merrill in the release. “Colliers provides long-term stability and increased alignment among our team and limited partners.
“The relationship strengthens our global capability and offers unique market knowledge and deep relationships with owners and occupiers of real estate around the world. Colliers’ entrepreneurial culture, decentralized management style, significant insider ownership and proven investment record was another significant difference.”
Harrison Street formed in 2005
Harrison Street was founded in 2005 by Merrill and Chris and Mike Gavin, members of the founding family of Motorola. The firm was named for the location in which Motorola was founded, on Harrison Street, in Chicago.
Harrison Street investors include sovereign wealth funds, public & corporate pension funds, endowments, insurance companies, foundations and family offices.
Harrison was also in the news in January when it sold a $1-billion student housing portfolio to Scion Student Communities.
The firm has provided in excess of $4B in capital to its operating partners.
In late-morning trading on the TSX, Colliers’ stock was just shy of $97. In the past 12 months, Colliers has enjoyed an impressive run on the TSX, rising from the $70 range in May 2017.
Berkshire Capital acted as financial advisor and DLA Piper acted as legal advisor to Harrison Street and the management team. Three Ocean Partners acted as financial advisor and Winston & Strawn acted as legal advisor to certain of Harrison Street’s shareholders.
Sidley Austin acted as legal advisor to Colliers.
About Colliers International
Toronto-based Colliers is an industry-leading real estate services company with a global brand operating in 69 countries and a workforce of more than 12,000 skilled professionals serving clients in the world’s most important markets.
Colliers is the fastest-growing publicly listed global real estate services company, with 2017 corporate revenues of $2.3 billion ($2.7 billion including affiliates).
Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide, including strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting.
Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 13 consecutive years. Colliers has also been ranked the No. 1 property manager in the world by Commercial Property Executive for two years in a row.