Virtus Real Estate Capital, an Austin, Texas-based private equity firm, has created a fund to invest in student housing with the goal of acquiring more than $300 million of properties over the next two years.
The fund plans to deploy $100 million to $150 million in equity, preferred equity, and mezzanine investments. It will use senior debt on top of that to acquire the properties, said Terrell Gates, founder and chief executive of Virtus.
The firm’s expected leverage is between 60% to 75% (loan-to-value), which leads to the $300 million figure, Gates explained.
The CEO said he likes to invest in real estate asset classes that show greater resilience to economic downturns, which is what he expects from the student housing market.
College enrollment is increasing dramatically, which makes student housing "ripe for private investment," especially as these institutions deal with shrinking budgets, said Jeffrey Schneider, director of capital investment at Virtus.
Besides properties that are specifically built for students, Gates said the fund will purchase multifamily properties that target students. Also, in urban markets the fund will buy traditional apartment units and convert them into student housing.
In some cases the fund will acquire interests in holding companies rather than buying the underlying real estate. “"We will also be acquiring notes, typically performing, non-performing, as well as providing opportunistic financing to acquire notes," Schneider added.
