Ares Management has originated its largest-ever industrial loan, funding $480 million via funds managed by Ares Real Estate Debt on a portfolio of US industrial properties as part of its focus on sectors in which it has a high conviction.
The senior loan is collateralized by a portfolio of 11 industrial properties totaling 4.2 million square feet in seven US markets and highlights a different way of thinking about the sector. “In addition to being an asset class of high conviction, the underlying diversity of properties, markets and tenants was attractive to us,” Bryan Donohoe, partner and head of the firm’s real estate debt business, told Real Estate Capital USA.
The firm has benefitted from its July 2021 merger with Black Creek Group, an industrial specialist. Donohoe believes the merger has given Ares unique insights into the industrial market. “Since our industrial team is constantly buying, financing and leasing up assets throughout the country and seeing underlying trends at their onset, we believe this helps us to be one [or] two steps ahead of certain [other lenders],” said Donohoe.
The loan expands Ares’ industrial holdings in high-growth markets, such as Austin, Louisville and Raleigh-Durham. In addition to the strength of the portfolio’s in-place tenancy, the demand for industrial space in these markets is expected to accelerate due to the favorable outlook for the manufacturing and e-commerce sectors.
“This transaction is a reflection of the market conviction and our unique ability to act upon it,” said Donohoe.
“We were able to look at our own assets similarly positioned in these geographies and confidently underwrite this execution on behalf of a trusted sponsor client.”
Ares, which has $282 billion in AuM of which $37 billion is in real estate, believes it will continue to harvest more market share, with Donohoe explaining that the firm is witnessing what he describes as a synthetic consolidation among lenders.
“[This] is a situation in which some lenders and equity shops with only one way to attack their market become less relevant,” said Donohoe. “I think we’re going to continue to see this quasi consolidation in our space, where the lenders that can deliver financing on core through opportunistic business plans are going to be the winners over the next three to five years.”
Experience matters, Donohoe said.
“I don’t know that one deal moves the needle, but generically across the market, incumbency matters,” said Donohoe. “When we have provided loans, when we’ve been the partner of choice for so many top sponsors in the space, that creates value for us and our sponsor clients in terms of efficiency. And I think incumbent lenders will continue to enjoy the fruits of their past labor.”