Fortress puts its second 1031 bet on Greensboro student housing

Funds managed by Fortress Investment Group affiliates have made the second investment through Fortress Real Estate Exchange, the firm's 1031 platform: University Village, a 600-bed, 203-unit student housing community in Greensboro, N.C., IREI reports. Built in 2007 on nearly 250,000 rentable square feet one block from the University of North Carolina at Greensboro and also serving North Carolina A&T State University, the property will keep CLS Living as property manager.

University Village has run at nearly 100 percent occupancy through the past four academic years, and Greensboro has not seen a new student housing development in a decade, according to the firm. The enrollments behind those beds are climbing, with UNC Greensboro up more than 5 percent in two years and North Carolina A&T growing every year for ten, which Eli Edwards, U.S. head of real estate equity at Fortress, says should support performance.

University Village is only the second asset placed through an exchange vehicle that gives financial advisers and their clients access to institutional real estate via Delaware statutory trusts, and a 600-bed community is small beside Fortress Investment Group's $87.3 billion in registered AUM as of late August, according to this publication's records. That makes the deal a distribution event dressed as an acquisition. A platform that wants to be a real 1031 shelf needs deal flow, and Fortress has now put student housing among its early categories; if this one clears, college-town copycat vehicles are likely.

Advisers should not confuse the packaging with the risk profile. A nearly full building with a local supply freeze has real income appeal, but the rent roll is a function of two admissions offices. The supply freeze is the durable half of the trade; enrollment growth is the half that has to keep climbing. If either school's admissions numbers flatten, University Village stops behaving like a 1031 income asset and starts behaving like an operating business with two customers; that is not a reason to avoid it, but a reason to recognize what is being bought.

The patient-capital line Fortress's David Hammerman advanced last month — private capital can outlast real estate's institutional clock — fits University Village, a supply-constrained building with an in-place manager and four years of nearly full operation. The platform's second bet is clean. The next Greensboro admissions cycles will tell whether its clock runs long enough.