ARA’s Lim: Setting up a US funds platform would be ‘naïve’

The Singapore-based investment manager funded its initial foray into the world’s largest property market with balance sheet money rather than institutional capital.

When the Singapore-headquartered investment manager ARA Asset Management was officially privatized around 18 months ago, the firm had S$35.6 billion ($25.9 billion; 22.8 billion) in assets under management across Asia-Pacific markets. At that time, the firm’s co-founder and group chief executive John Lim had laid out lofty plans of increasing the AUM to S$100 billion within the next five years.

It would be an understatement to say the firm is on track. At present, ARA Asset Management and its associates are already understood to be managing around S$80 billion in gross assets under management.

Its investment debut into the US was the final piece in its global expansion puzzle. Earlier this month, ARA completed the acquisition of a portfolio of 38 select service Hyatt hotels across 21 states to mark its entry into the US. PERE understands from people familiar with the transaction that the total asset price of this portfolio was around S$1 billion.

Speaking to PERE on the choice of investment strategy, Lim said the firm had been looking at the US market for a couple of years and eventually narrowed down potential strategies in the country to the hospitality sector.

“The US is a big market. I think it would be naïve for us to think of setting up a fund management platform,” he stated. “Our strategy in the US is to focus on certain sectors that we believe we have a role to play [in]. Select service as a hospitality sector is one of the areas we feel we can grow.”

This sector will be the firm’s focus in the US for the next three years, and Lim says the plan is “to make sure this becomes a multi-billion-dollar platform.”

With this strategy, the firm is hoping to leverage the growing hotel and lodging industry in the US, which is anticipated to grow by close to 3 percent this year, supported by both a robust economy and a positive long-term business outlook. That the sector is somewhat resilient to economic cycles also influenced the decision, Lim noted.

He explained why the firm chose to fund its US foray from its own balance sheet instead of raising institutional capital: “ARA is a fund management company. As a company, our balance sheet strategy is very clear. We will only invest in assets where we can generate fees. I won’t invest balance sheet capital for pure capital gain.”

The firm plans to amalgamate a portfolio of hospitality assets to eventually list them either in a REIT or inject them into one of its private funds.

In addition, ARA is also planning to open an office in Dallas, Texas to help in investment, asset management, business development and related services in the US. Leading ARA’s efforts will be Jin Lee, an industry veteran with more than 25 years of experience in the hospitality sector.

The US entry follows successful forays into Europe and Japan in the past 18 months. In March this year, ARA acquired a 19.5 percent interest in Australia’s Cromwell Property Group, which has a real estate investment portfolio across Australia, New Zealand and Europe. This was preceded by purchasing a 23 percent stake in the Japanese real estate manager Kennedix in June 2017.