Ares Management is the latest name among a growing line-up of investment managers to successfully close a higher-returning real estate fund in 2021.
The firm has raised $1.7 billion in commitments for Ares US Real Estate Opportunity Fund III, beating its original $1.5 billion target. Following the final close held last week, the vehicle has become Ares’ largest US real estate equity fund raised to date.
PERE understands around 35 investors committed capital to the fund. The LP re-up rate is believed to be 87 percent. The globally diversified investor base includes sovereign funds, public pensions, insurance companies, family offices and foundations.
“When we went into this period [post-March 2020], the interest levels in opportunistic vehicles went up,” David Roth, partner and head of US real estate private equity told PERE about the fundraising momentum following the covid-19 outbreak and the accompanying market meltdown. “There was a sense within the LP community that we were at the end of a long-dated cycle.”
PERE also understands the firm was able to raise more capital from Asian investors for this fund, compared to its previous fundraising efforts.
“We have always had investors from the Americas, Europe and Middle East in this strategy but are now also starting to get more traction in Asia,” Roth explained. “Some real estate investors in Asia that might have been historically more yield-oriented were more interested in making opportunistic commitments because of where we are in the cycle.”
The fund will be invested in distressed, repositioning and select development opportunities. The firm is aiming to capitalize on post-pandemic distress opportunities arising in sectors including hospitality, retail and senior housing, while at the same time also finding deals in sectors like single-family rental, industrial and life sciences witnessing an uptick in demand.
Nine investments have already been made through the fund, which make up 30-35 percent of the fund’s capital, including two office buildings in Washington, DC, which PERE understands are both distressed bets. In January, the firm also acquired Front Yard Residential, a single-family rental housing provider, in partnership with alternative investment manager Pretium. The press announcement pegged this as the first-ever take-private transaction in the single-family rental space. Other investments from the fund include two industrial programmatic investments and one student housing asset.
“Distress takes time to develop,” Roth said, when asked about the current state of distress being seen in the market. “During the last downturn, real opportunities did not develop for almost two years after the beginning of the global financial crisis. We suspect there will be more opportunities this year in hospitality and senior housing and in places like New York and San Francisco.”