Virtus Real Estate Capital is looking to raise between $100 million and $150 million in equity for its first fund targeting student housing properties in the US.
The Austin, Texas-based real estate private equity firm is targeting small- to mid-sized institutional investors and family office groups, as well as small endowments and pension funds, for the fundraising. In addition, for the first time, Virtus is targeting foreign investors, especially those from Latin America, looking to deploy capital in US real estate, according to Terrell Gates, chief executive officer and founder.
The fund, Virtus Student Housing, will acquire student housing properties, as well as preferred equity and mezzanine positions backed by the property type, in collegiate markets throughout the US. More specifically, it is looking for assets located in high-density urban areas, near second-tier universities and major community colleges.
The new fund seeks to capitalise on demographic trends, increased student enrollment in colleges and the fragmented nature of the student housing asset class. “According to recent reports, US college enrollments are increasing dramatically, with approximately 18.7 million college students in the US this year,” said Jeffrey Schneider, director of capital investment at Virtus. “At the same time, state and university budgets are shrinking, prompting many colleges to look to the private sector to supply their housing needs as they focus more limited funds on academics. We’re primed to take advantage of this expanding opportunity.”
Historically, more than 85 percent of Virtus’ investments have been in the Sunbelt region because the firm’s targeted demographics are more highly concentrated there, Gates noted. Nevertheless, one of its student housing strategies centers specifically on the market of Boston, Chicago, Philadelphia, New York and Washington DC, he said.
The fund will target assets with good current income plus growth potential, with the growth portion generated through opportunistic purchases and value-added improvements. In this manner, Virtus expects the fund to generate IRRs of 20 percent or more, with half or more of that return coming from current income, Gates noted.
By employing leverage of between 60 percent and 75 percent, the fund anticipates acquiring more than $300 million in student housing interests. The fund will begin making acquisitions as it is being capitalised and expects to deploy all of its capital this year and next.
For all of its investments, Virtus looks to partner with best-in-class real estate operators that are experts in their specific property type. “We are generalists and are focused on the investment strategy,” Gates said. “We want domain experts with a regional focus handling the day-to-day management of our properties.”