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Ares sees deep data as critical differentiator in lending, investment markets

While the firm uses outside data sources in addition to its own portfolio, being able to look at its assets has helped to manage risks.

Ares Management believes having insight into the performance of a large real estate equity portfolio is becoming a key differentiator for investment management companies that play on the debt and equity side of the equation.

The New York-based investment management company invests throughout the capital stack in a wide gamut of commercial real estate sectors, said David Roth, a partner and co-head of US real estate at Ares.

Ares significantly expanded its reach into the industrial sector through the acquisition in 2021 of Black Creek Group, which manages a vertically integrated operating platform in that sector. The acquisition also brought to Ares the ability to raise capital via non-traded real estate investment trusts. Black Creek had about $13.7 billion in assets under management at the time of the acquisition in mid-2021.

But the ability to look inside of the Black Creek industrial portfolio has also allowed the firm to take due diligence to another level, Bryan Donohoe, partner and co-head of US real estate at Ares, told Real Estate Capital USA. Prior to the Black Creek acquisition, Ares already had a deep level of insight in its diversified equity portfolio – especially as it relates to multifamily – and utilizes those insights.

“When a borrower comes to us to borrow money in the industrial space, it would be hard for us to say we don’t have a relevant comp in our own portfolio given that we own over 190 million square feet of industrial space worldwide,” Donohoe said.

This includes understanding in real time what is going on with underlying tenants and how that has allowed the firm to more nimbly shift its strategy. “Prior to the COVID crisis, we had been mostly buyers of industrial buildings through our value-add strategy. As we saw through our value-add portfolios as well as Black Creek’s portfolios an acceleration of supply chain strategies, we expanded our development activities to our opportunistic strategy,” Roth said.

While the firm uses outside data sources in addition to its own portfolio, being able to look at its assets has helped to manage risks. “We believe we are making thematic investments and with a significant amount of space that we are leasing today in the United States, we believe we know more about rental rates and the velocity of demand. If you just rely on one of the brokerage firms to talk about anticipated rent growth, you might have found these reports were not always correct. But if you go to our asset management folks, they can tell you what the leasing market is like.”

Ares saw its real estate portfolio grow substantially over the past two years. While much of that growth has been from acquisitions like Black Creek, another part stems from what Donohoe noted as growing investor appetite for the real estate asset class and capital inflows across Ares’ real estate strategies.

Although the commercial real estate market has seen substantial changes over the past two years, there is one change that hasn’t happened: the adoption of tokenization.

“It may ultimately happen,” Roth said. “If it does, it likely will be like a colony of ants trying to get across the river. Eventually, some of the ants will get across but there will be a million dead ants before it happens.”