Ares Management Corporation has made its entry into the European student housing via a joint venture with UK residential-focused manager Generation Estates, PERE has learned.
The New York-based alternative investment manager, on behalf of one of its European real estate funds, and Generation have purchased two newly-built student accommodation assets comprising 1,359 beds in the cities of Exeter and Cardiff for £157.5 million ($222.2 million; €182.9 million). The joint venture will pursue a value-add strategy and be focused on acquiring purpose-built student accommodation properties in the UK.
“This is the first student housing deal we have done with our business in Europe,” said Wilson Lamont, partner and co-head of European real estate equity at Ares. “We have been looking in this market for some time. It’s a market that has grown rapidly over the last 20 years. And in recent years, we have been looking for the right entry point.” The transaction also marks the first niche real estate deal that Ares has struck in the region since the global financial crisis, he added.
The pandemic helped to facilitate Ares’ entry into the niche real estate sector since many investors were sitting on the sidelines last year, Lamont noted: “The student housing is a sector that has been impacted by the covid pandemic. We saw the opportunity to step into the market and secure assets that would otherwise be attractive to very core institutional investors.”
Lamont pointed to Ares’ new UK student housing investments as a key example. “These are two brand-new properties in two well-recognized student cities,” he remarked. “These are exactly the type of properties that would have gone to core buyers in a normal market.”
He added: “The pool of core buyers to deploy capital is much thinner and much reduced from where it was 12-18 months ago. The ability to buy at more attractive terms is better than what it was.”
Ares’ and Generation’s initial goal for their JV is to expand to their portfolio to £400 million-£500 million over the next 6-18 months. “The UK higher education system is not only a European leader, it’s a global leader,” Lamont said. “And the UK student housing market is not only the biggest in Europe, it’s the most well-evolved market and the most attractive to international investors.”
Although Ares will be initially focused on the UK student accommodation market, the firm is also looking at student housing opportunities in Germany and Spain. “Globally we think the student housing market is a very interesting sector,” he added. “It’s supported by phenomenally strong tailwinds, principally driven by the rise of the middle class globally. The number of students in higher education is expected to reach 380 million globally by 2030.”
The overwhelming majority of Ares’ global real estate portfolio is invested in logistics/industrial and residential. Meanwhile, alternative property types represent a small minority of the firm’s property holdings, although Lamont expects the firm’s allocation to niche real estate strategies to grow over the next few years. “Student housing is at the top of our list,” he said. “We’re also spending a significant amount of time looking at the data center market. We periodically assess the senior housing market where the long-term demographics are extremely supportive, but where asset and operator quality is far behind.”
As of December 31, Ares managed approximately $197 billion of assets across its businesses in credit, private equity, real estate and strategic initiatives and had more than 1,450 employees in North America, Europe and Asia Pacific. The firm’s real estate group, which manages public and private and equity and debt strategies, had approximately $14.8 billion of assets under management and approximately 85 investment professionals, as of year-end 2020.
Generation has developed and acquired more than 6,000 beds in the UK and Ireland. The firm was involved in the creation of the Nido Student Living and Pure Student Living businesses and since 2017 has co-managed the Europa Generation Student Accommodation Fund in a joint venture with pan-European investment manager Europa Capital.