Virtus Enters Student Housing Arena

The recession may have emptied out office buildings, but the hallways of campus housing facilities have remained relatively full, and Virtus Real Estate Capital has just positioned itself to capitalize on the sector's enduring strength. Its new fund, Virtus Student Housing L.P., will invest in excess of $300 million in student housing properties.

Courtesy Flickr Creative Commons user LifeSupercharger

The recession may have emptied out office buildings, but the hallways of campus housing facilities have remained relatively full, and Virtus Real Estate Capital has just positioned itself to capitalize on the sector’s enduring strength. Its new fund, Virtus Student Housing L.P., will invest in excess of $300 million in student housing properties.

New territory for Virtus, which marks its 34th fund with this latest offering, the student housing focus nonetheless fits like a glove with the private equity firm’s core investment strategy. “Our focus on investing in real estate asset classes whose demand is driven by major demographic trends has historically provided greater resilience to economic downturns than traditional asset classes, and it shows in the performance of our assets during the most recent downturn,” Terrell Gates, the company’s CEO & founder, said in a prepared statement. “We expect the same kind of resilience from our student housing fund if there’s another downturn.”

Student housing certainly did weather the economic storm quite well, particularly compared to other sectors like office and retail–and industrial and hospitality– and studies indicate that this niche will not fail anytime soon. “It seems that the only constant in 2010 was the darling status that the student housing industry continues to enjoy from the investment community,” according to a report from ARA’s National Student Housing Group released earlier this year. “From a macro perspective, student housing continues to outperform other asset classes due to strong long-term fundamentals. Based on U.S. Department of Education projections, college enrollment is expected to rise 10 percent between 2008 and 2017, to over 20 million students.”

The fund will rely on equity, preferred equity and mezzanine investments for acquisitions. However, despite the fact that the sector is thriving across the board, those acquisitions will not be made in just any market. The criteria for catching the investment vehicle’s attention include a high-density urban location and a position within close proximity to tier II universities and major community colleges. As for the properties themselves, multi-family destinations with conversion potential will be considered. And assuming a property is in acceptable condition, age doesn’t matter–but size does. Therefore, acquisitions made through the fund will likely involve housing facilities that can accommodate a minimum of 275 beds.

Shopping has already gotten underway. The fund has entered into an agreement to snap up a 700-bed student housing community near a major state university in the Southeast. The transaction is on track to close by July.

Virtus Student Housing’s anticipated investment period is 24 months, with the goal of holding assets for five years. The fund will be open to new investors until April 15, 2012, although, there is an extension option.