ESR’s ARA Private Funds sale has three carve-outs

On Monday, Asia industrial powerhouse ESR Group announced it had agreed to sell significant parts of its ARA Private Funds business to Japan’s Sumitomo Mitsui Finance and Leasing Co, Japanese real estate investment firm Kenedix and current ARA CEO Moses Song for $270 million.

The APF business being sold manages $9.8 billion of assets across 22 funds. The portfolio consists of closed-end funds that own assets in traditional real estate sectors including office, retail and hospitality in Australia, Singapore, South Korea and the US.

ESR will continue to own other parts of Singapore-headquartered real assets manager ARA Asset Management, which it acquired in 2022. These include ARA’s majority interest in logistics specialist LOGOS Property Group, ARA’s listed vehicles and ARA’s stakes in other entities such as Australia’s Cromwell Property Group and Kenedix.

ARA bought into Kenedix in 2017 and increased its stake from 27.27 percent to 30 percent in 2021. Meanwhile, Kenedix – which has assets under management of ¥2.8 trillion ($19 billion; €17.3 billion) – bought a 30 percent interest in ARAvest, APF’s new holding company, as part of the APF sale.

However, the APF sale itself includes some notable exclusions.

1. ARA China

ESR and the buyers agreed that ARA China would be left in “better hands” under ESR as the firm already had existing onshore capability in the country, according to a source involved in the transaction. With $2.2 billion of AUM, ARA China is led by ARA’s country head Alvin Loo. The platform has raised capital from domestic investors to invest in Chinese real estate since 2019. The first transaction was a 50:50 joint venture with Beijing-headquartered investment manager CICC Capital to purchase a commercial mall in Chengdu the same year.

2. ARA’s European platform

ARA’s European platform consists of its $21.6 billion real estate equity business ARA Europe and its £10 billion ($12.8 billion; €11 billion) real estate debt business ARA Venn. ARA Europe runs a value-add real estate equity fund series called ARA Europe Active Real Estate. It is also the investment and asset manager for Regional REIT, a London Stock Exchange-listed real estate investment trust, which owns regional office assets in the UK. ARA Venn was formed in March 2020, when ARA Asset Management took a majority equity stake in London-based alternative lending firm Venn Partners. ARA Venn manages a real estate debt fund series called Venn Commercial Real Estate, which originates mainly whole loans secured by assets in France, Germany, Ireland, the Netherlands, Spain and the UK.

3. ARA’s infrastructure/renewable energy platform

Launched in 2019, ARA’s infrastructure/renewable energy platform has $2 billion of AUM including the $1 billion China ASEAN Investment Cooperation Fund II – which was closed in November 2022 and is the largest ASEAN-focused private infrastructure fund. The fund also represents ESR Group’s first infrastructure fund and one of its first discretionary vehicles following the ARA acquisition.

Not a surprise

ESR declined to comment on the divestment of individual business units but noted the latest transaction represented more than one-third of its $750 million non-core divestment target, according to an ESR spokesperson.

The sale came less than three years after ESR announced its $5.2 billion acquisition of the $95 billion ARA Asset Management in 2021. Aside from its new economy assets, ARA also brought in $78 billion of other real assets holdings, including traditional real estate, real estate credit and infrastructure into ESR following the acquisition, PERE reported.

While ESR has been actively integrating LOGOS into its overall platform following the transaction, the group made it clear from the beginning that it would divest “any non-core/non-long-term value-enhancing aspects” of the combined business.

“The transaction reduces ESR Group’s traditional real estate exposure and simplifies our business with the benefit of simplifying branding, reduces overheads and headcount, frees up management time and reduces overall organizational complexity,” an ESR spokesperson said of the $270 million sale.

Meanwhile, ESR’s core focus will be asset classes underpinned by the growth of e-commerce, digital transformation and financialization of the real estate markets.