Virtus Real Estate, a real estate private equity firm based in Austin, Texas, is seeking $100 million to $150 million of equity for its fourth fund focused on self-storage properties, according to Terrell Gates, chief executive officer and founder.
The firm is targeting small- to mid-sized institutional investors and family office groups, as well as small endowments and pension funds, for the fundraising. It has raised $5 million so far and expects to close the fund in October 2011.
The fund, Virtus Storage Investment IV, will invest in self-storage properties throughout the US. Historically, Virtus has focused its investments on tier 1 and tier 2 markets in the Southeast, but it is actively diversifying into other regions, particularly the Northeast and Midwest, Gates noted.
The fund will target assets with good current income plus income growth potential, as well as additional upside through value-added improvements and the correction of inefficiencies, Gates said. In this manner, Virtus expects the fund to generate IRRs in the low to mid-20 percent range, with half or more of that return coming from current cash flow, he added.
By employing leverage of up to 65%, the fund anticipates acquiring between $300 million and $450 million in self-storage assets. The fund will begin making acquisitions as it is being capitalized and expects to deploy all of its capital by mid-2012.
In addition to its latest self-storage fund, Virtus is planning to launch a student housing fund in the first quarter of 2011. Looking to raise between $50 million and $100 million of equity, that fund would invest mainly in student housing properties, but it also could invest in preferred equity and mezzanine debt positions backed by the property type, Gates noted.
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.”
Virtus bases its overall investment strategy on several demographic trends: the aging and growth of the Baby Boomer Generation; the coming of age of the Millennial Generation; the growth of the Hispanic market in the US; and the transitory nature and decreased job tenure of the American worker. Because these trends are separate from the influences of macroeconomics and the real estate cycle, investing in properties that capitalize on these trends provides the firm with some downside protection, Gates explained.
“We are hyper-focused on minimizing the impact of fluctuations in the marketplace,” Gates said. “Our previous investments in our demographic-driven model have proven to be successful, even in the downturn, and we’re confident we can continue.”
Since its founding in 2003, Virtus has purchased 118 properties throughout the US with an acquisition price of more than $1.5 billion.