Harrison Street CEO Christopher Merrill says inflation could last

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During his testimony before the Senate Banking, Housing and Urban Affairs committee on Tuesday, Fed Chair Powell said inflation “won’t leave a permanent mark.” But one investor thinks inflation may be here to stay. 

Christopher Merrill is the co-founder and CEO of Harrison Street and sees the stickiness of price increases first-hand with his firm’s focus on demographic-driven real estate, such as student housing and nursing homes. Despite the challenges these segments faced during the pandemic, Harrison Street was able to rake in an additional $7 billion last year, bringing AUM to $39 billion.  

Merrill sat down with Leslie Picker to discuss how his strategy has endured over the years and why he thinks inflation may linger for a decade.  

 (The below has been edited for length and clarity.)

Leslie Picker: [Your] strategy, it’s weathered the financial crisis, it survived COVID, despite, for a while there, there was some disintermediation in nursing homes and universities. But what about inflation? What about this current macroeconomic environment that feels so uncertain right now? Do you think inflation is here to stay? And how does that impact your portfolio?

Christopher Merrill: I think for one, the certain levels that we’re seeing today, I would assume that there will be, as we see improvements in supply chain, I think we’ll see some of those numbers come off a little bit. But yeah, I think it’s prudent in the way that we’re thinking about the businesses that  one should expect some level of now inflation in their portfolio going forward. And frankly, one of the benefits is a large part of the assets in our portfolio, we can reprice. I think when you mentioned that comment on the capital that we’ve had investing in our asset classes, a lot of it has to do with the ability to have inflation protection built in because we can reprice a lot of our portfolios on a monthly or annual basis.

Picker: What does that mean by reprice? Does that mean raise the rent, essentially?

Merrill: Yes, in a lot of ways it does. It means either raise the rent, get more in line with what market is. If we’re building an asset, it’s really going to be the opportunity to align that with current market fundamentals. We’re seeing a lot of increase in demand. There’s been a lot of reduction in supply lately. So really, it’s getting that  demand-supply balance in check. And the ability to, again, reprice on the revenue side, really will help protect against inflationary pressures on these asset classes.

Picker: Are you already doing that? Give us a sense of what the inflation picture looks like on the ground right now.

Merrill: I think we’re seeing it. The best sense for us is a few things. When you look at our self storage portfolio, we’re seeing a lot of increases month-to-month right now. We’ve seen 6%-7% month-to-month increases in the storage space. Then you take senior housing, which was a sector…