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Virtus Launches $100M Self-Storage Fund

Self Storage Facility

AUSTIN, TX-Virtus Real Estate has kicked off an $100 million fund focusing on self-storage. The fund is the private equity firm’s fourth fund to focus on the self-storage sector and its largest self-storage fund to date.

Virtus acquires properties alongside strong operating partners, paying cash for the assets and then placing debt on them later on. The new self-storage fund will add $300 million to $450 million in assets to the company’s existing portfolio, which consists of 118 properties with an acquisition price of more than $1.5 billion.

It will invest in self-storage properties primarily in the Sunbelt, as well as select markets in other regions; it will also provide senior and mezzanine financing to self-storage owners.

“Unlike other firms and private REITs that raise billion-dollar funds, we like smaller funds that we can capitalize and deploy in a concise time frame,” says Terrell Gates, chief executive officer and founder of Virtus Real Estate, adding that Gates the company has raised 33 funds since its launch in 2003. For example, the firm’s third fund, which raised nearly $40 million, recently ended its fundraising period and will be completely deployed within the next 60 days.  

Gates tells GlobeSt.com Virtus currently has 40 properties in the letter-of-intent or contract stage and another 50 properties under due diligence. The company will buy those properties with monies raised through funds three and four.

With an average deal size of $3 million, Virtus sources most of its buys on an off-market basis. “There is more competition today from other investors than there was a few months ago, but we tend to buy one-off deals directly from small operators so we don’t run into a lot of private or public owners,” Gates notes.

Fundraising for Virtus’ newest fund will take place over the next 12 months and will target both retail and institutional investors, Gates says. Previously, the firm focused only on raising money from institutions, but when raising its third fund it decided to seek investment capital from retail investors.   

“We see the retail channel as a great opportunity going forward,” Gates says. “And one of our newer pushes is to attract investment from small-to-mid market pension funds.” He notes that returns for retail investors are in the mid-teens and returns for institutional are north of 20%.

The newest fund will continue Virtus’ focus on class B self-storage properties located in tier one and tier two markets. “We like buying assets with both double digit cash flow so we have income today and upside so we have growth over time,” Gates says. “We prefer value-added opportunities.”

Gates says Virtus has yet to acquire any self-storage properties outside of Sunbelt markets but plan for its fourth fund to acquire assets in other US markets. “We will make a push into areas we’ve not been in before, but we’re not going to get serious about other markets until we find operating partners.”