By Jon Peterson
Oregon Public Employees Retirement Fund has formed a co-investment relationship with Chicago-based Harrison Street Real Estate Partners to invest in life science assets in the major cluster markets around the county. The targeted markets will include the San Francisco Bay Area and Seattle. Other markets where the joint venture will be active are Boston/Cambridge, San Diego and North Carolina.
The name of the co-investment relationship is HS-OR Life Science Partners, and the pension fund is providing a $200 million equity investment into the venture.
Harrison Street declined to comment when contacted for this story.
Oregon PERF stated that it will have full investment discretion over the relationship. “We will have the ability to opt in or out for any transaction that includes our co-investment capital. This type of investment structure will allow us to access the property type through a strong manager in the space without creating any undue stress on our investment staff,” says Anthony Breault, senior real estate investment office for the Oregon State Treasury, which directs investment recommendations for the pension fund.
The co-investment will represent the first time that Oregon PERF has made an investment that will only place capital into life science properties. The capital invested in the life science properties will vary greatly from a risk perspective between each transaction. In some cases, this will involve buying a stake into an existing core asset utilizing very low leverage. Investments could also be part of equity in new development projects that will have a leverage component as high as 65 percent.
The investment that Oregon PERF is making is another example of the large amounts of institutional capital seeking to invest in the life science sector. Investors believe that there is tremendous tenant demand for the property type with little risk of over building, since the tenants prefer to be located in the main cluster markets around the country and not expand into other markets.
The property type has not seen the same vacancy issues that have plagued the traditional office markets since the outbreak of COVID-19. A major reason for this is that the employees of life science tenants likely need to be in the building, since the lab work really cannot be accomplished in a work-from-home environment.