Creating a virtual directory failed with the error

More often than not, at least in my case, this happens is when a *.csproj.user file is in the project directory and has <UseIISExpress>true</UseIISExpress> in it.

Alternatively, as mentioned by Zachary Cutler you can also simply: close Visual Studio, delete the *.csproj.user file and reopen Visual Studio. This will force VS to rebuild the file.