It was announced last month that Los Angeles-based alternative asset manager Ares Management had signed a definitive agreement to buy New York-based private equity real estate firm AREA Property Partners. It was a move that immediately expanded AREA’s global presence while simultaneously giving Ares a full-service real estate arm with a proven track record.
Lee Neibart, current chief executive officer of AREA and soon-to-be co-head of Ares Real Estate Group alongside existing head John Bartling, recently spoke with PERE about how this transaction came to be, what it means for the newly expanded real estate platform and whether the firm plans to follow in the footsteps of other large asset management firms that offer a full array of alternative investments.
PERE: When the announcement hit, I don’t think anyone saw it coming. How did this deal come about?
Neibart: First off, I think it’s important to note that I’ve known the leadership at Ares for more than 20 years. So my relationship with Ares co-founder Tony Ressler and his partners is outstanding. We like each other, and we trust each other.
Over lunch late last year, we came to the conclusion that, since Ares had a mortgage REIT called ACRE and it wanted to be involved in real estate on a global basis, it made sense that we combine forces by adding our real estate equity expertise. It achieves our mutual goals. For us, it meant playing on a bigger stage by joining a firm that has $60 billion of assets under management. For Ares, we offered instant industry presence.
In addition, it was not lost on either of us that The Blackstone Group, The Carlyle Group and Oaktree Capital Management are full-service providers for their investors. It’s not just real estate they provide, it’s credit, bank debt and corporate private equity. Therefore, we felt very strongly that this was where institutional investors were going—toward fewer global managers who could handle all of their different investments.
PERE: What made you even consider putting AREA up for sale?
Neibart: Let’s be clear: we didn’t put AREA up for sale. AREA has been a very strong and thriving business for more than 20 years, and it could have continued to be successful going it alone. We just felt that the ability to combine forces would increase our presence around the world, provide access to increased deal flow and allow us to take advantage of Ares’ extensive research group. So, there was no ‘For Sale’ sign on AREA; this started from a lunch meeting where we decided that one and one equaled three.
PERE: How will this affect your dealings with institutional investors going forward?
Neibart: Part of the reason I began discussions with Ares is because of the growing trend by pension plans to take part of their tactical investments in real estate and allocate them as part of large pools of capital to invest across all of the product types at large managers. The Teacher Retirement System of Texas, the New Jersey Division of Investment and the California Public Employees’ Retirement System have all made news recently doing so. Combining with Ares would enable us to get allocations from all types of investors globally through Ares.
PERE: What do you see as being the biggest advantage of this merger?
Neibart: I would say it is the combination of a significant number of people on the ground worldwide with the broad knowledge of what’s happening globally in the corporate and real estate asset classes. For example, AREA has not been a buyer of real estate bank debt, while Ares is a big buyer of corporate debt in the US and Europe. So, if you combine our on-the-ground knowledge of real estate in Europe with Ares’ knowledge of debt globally, the combined entity now has the opportunity to buy real estate bank debt.
PERE: What will happen to the AREA name and brand going forward?
Neibart: The AREA brand will become Ares, and all of our new products will be branded as Ares going forward.
PERE: What’s the biggest thing you’re looking forward to with Ares Real Estate Group?
Neibart: I am looking forward to having the opportunity to do larger deals on a more consistent basis and better serve our investors by providing the widest array of products. Our investment professionals will now have the opportunity to play on a larger playing field, and we will be able to attract even more talent to this world-class platform.
To read our special report on Ares buying AREA, be sure to check out the June issue of PERE.