Ares scoops European mixed package for €100m

US group Ares Management said on Monday that one of its funds has acquired a 45,000 m2 office and retail portfolio located across five European countries from IVG Institutional Funds.

The deal, valued at more than €100 mln, represents one of the first multi-country portfolio sales since the financial crisis more than six years ago. The eight properties in question are located in the UK, Germany, Sweden, Poland and the Netherlands.

'We are delighted to have completed the acquisition of a portfolio of high quality assets with a diverse set of strong tenants,' said Wilson Lamont, a partner in the Los Angeles-based group. 'Not only do the properties within the portfolio provide an attractive initial yield, we believe they also present several asset management opportunities, which is consistent with the objectives of our growing value-add business.'

Ares raised $1.3 bn (€1.1 bn) last month for a new European commercial real estate fund with a value-add/opportunistic risk profile. The alternative investment manager said that Ares European Real Estate Fund series significantly exceeded its fundraising target of $1 bn, reflecting the strong interest in European real estate on the part of US institutions looking to take advantage of further rental growth and yield compression expected in Europe.

The $1.3 bn Ares European Real Estate Fund IV targets investments in residential, retail, office and industrial real estate located in major European markets, including the UK, Germany, and France.

Ares Management’s Real Estate Group manages a variety of public and private equity and debt strategies, with $9.6 bn of assets under management as of 30 September 2014 on a pro forma basis including these two fund closings. The group focuses on lending to and investing in properties that have been under-managed or need repositioning in core markets.

The group is mulling the launch of a European real estate debt fund, Bill Benjamin, senior partner at Ares Real Estate Group, recently told PropertyEU. ‘Over the past 14 years, we have raised $3 bn of equity, including co-investments, to invest in opportunistic European real estate. Now, our plan is to get into European real estate lending, which is a natural extension for us,' he said.

Its European real estate lending unit will be based in London and will lend on assets in both the UK and continental Europe, according to Benjamin, who is also based in London.

While most Northern American investors coming to Europe have historically had an opportunistic focus, Ares' increasingly active play points to the emergence of a more institutional-quality type of US capital fleeing the expensive home market to buy on the old Continent at a much lower cost of capital.

‘I believe this is the first sign of a wave of core and core plus capital coming over from North America,’ said a market expert who wished to remain anonymous. ‘US institutional-quality players with easy access to the equity markets will be competing with the traditional US opportunistic funds, which meanwhile have been forced to lower their return targets in Europe. In fact, much of the capital recently spent in Europe by the likes of Blackstone has had more of a core plus risk profile than a true opportunistic focus,’ the source added.

Ares' multi-country portfolio deal is one of the first since the crisis in Europe and follows a similar transaction by NorthStar. The US REIT recently made its debut on the old continent with the €1.6 bn purchase of two portfolios comprising some 440,000 m2 of commercial space spread across nine European countries.

NorthStar last month acquired the Trias portfolio from German insurance company Provinzial NordWest for €500 mln and in December signed the acquisition of a 186,000 m2 European package from asset manager SEB Immobilien for around €1.1 bn.