AUSTIN, TX-Virtus Real Estate has kicked off an $100 millionfund focusing on self-storage. The fund is the private equityfirm’s fourth fund to focus on the self-storage sector and itslargest self-storage fund to date.

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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 inassets to the company’s existing portfolio, which consists of 118properties with an acquisition price of more than $1.5 billion.

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

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“Unlike other firms and private REITs that raise billion-dollarfunds, we like smaller funds that we can capitalize and deploy in aconcise time frame,” says Terrell Gates, chief executive officerand founder of Virtus Real Estate, adding that Gates the companyhas raised 33 funds since its launch in 2003. For example, thefirm’s third fund, which raised nearly $40 million, recently endedits fundraising period and will be completely deployed within thenext 60 days.

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

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

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

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

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

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

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