Principal Real Estate Investors and Chicago-based CA Student Living have formed a joint venture to invest in US student housing.

The venture has closed its first deal, buying a five-property portfolio for $175m (€160m).

Another $200m could be invested in the venture over the next couple of years.

Rod Vogel, senior managing director at Principal, said: “The student housing sector is a good place to invest some capital.

“There is a very strong demand for the product, as more students are looking at moving into secondary education.

“On a return basis, student housing properties can produce a 50-100 basis point higher return than traditional market rate apartment acquisitions.”

The five properties are near the University of Tennessee in Knoxville, the Illinois State University in Normal, Illinois, the University of Santa Barbara in California, the University of Oregon in Eugene and the University of Washington in Seattle.

The joint venture may consider investing equity in developments.

Principal is investing the capital for the venture on behalf of its core, open-ended fund, the Principal US Property Fund.

The real estate manager, the main equity source on the venture, has first right of refusal on any deal brought to the venture by CA Student Living, which acts as operating partner.

Principal requires schools to have at least 20,000 students and the property to be located within 4-6 blocks of the school.

On-campus housing offered by the school cannot exceed 30% of the student population.

The $7.2bn US Property Fund had an entry queue of $414.9m at the first quarter of this year.

A pension fund document from the Los Angeles City Employees’ Retirement System indicates that it would take three quarters for the capital to be called by the manager.

The pension fund last month committed $15m to the fund.