Virtus Real Estate has wrapped up fundraising for its second multi-strategy real estate-focused vehicle, the Austin-based firm said Wednesday.
The firm launched Virtus Real Estate Capital II in September 2015 with a $400 million target, and closed the value-added vehicle on $309 million. Concurrently, Virtus also formed a $100 million core and core-plus separate account that can make co-investments alongside the fund.
With capital from the fund series, the firm invests in niche property types, including student housing, senior living, medical office, self-storage and workforce housing. About two-thirds of the fund’s capital is invested in value-added strategies, with the remainder in opportunistic real estate, founder Terrell Gates told PERE.
The firm closed VREC I and co-investments on $239 million, and $26 million in a co-investment vehicle, in March 2015, Gates said.
To date, the fund has generated over a 20 percent gross internal rate of return, PERE understands. Virtus is targeting a 16-19 percent gross IRR for the fund series.
VREC II’s investor base comprises about 60 percent institutional investors, including corporate pension plans, endowments and foundations, and 40 percent individuals investing through registered investment advisors, Gates said. The investors include the University of Michigan, which earmarked $30 million, according to PERE data.
VREC II is about 40 percent committed through 12 deals, with recent investments including three workforce housing transactions in Indianapolis, Dallas and Fort Worth, Texas.
Gates said one current investment opportunity that has emerged since VREC I’s investment period is distressed real estate being sold by institutional owners that had not previously invested in a niche property type. He said these players, whether multifamily operators moving into other forms of housing or private equity firms expanding into non-traditional real estate, do not understand the operational needs of certain alternative strategies.
“These property types are more operationally intensive and require more specialized knowledge,” he said. “We’ve seen a number of scenarios where someone might have built a nice asset in a good market, but they had some missteps in the operations.”
New York-based JTP Capital was the placement agent for the vehicle.