Ares Closes $1.5B Opportunity Fund With Eye on Distress

Ares Management Corp. has closed its Ares US Real Estate Opportunity Fund III.

Ares’ Opportunity Fund III will target distressed, repositioning, and selective development opportunities. It was oversubscribed with approximately $1.7 billion of commitments compared to its $1.5 billion target. This fund is the largest US real estate equity fundraise for Ares and represents a significant increase from the $1 billion of commitments raised for the predecessor fund and related vehicles.

The Opportunity Fund III has nine investments committed to date. Ares intends to rely on its proprietary sourcing capability through long standing relationships and dry powder to find and secure opportunities.

Opportunity funds may be better positioned to succeed than funds focused just on distress as so far, there have been few opportunities for distress in most commercial real estate categories with the exception of hotels. In the industrial and apartments sectors only 1% of sales in each category was tied to an asset purchased out of distress, according to Real Capital Analytics. Distressed office properties only constituted 1.3% of office deals over the last 12 months.

In general, distress funds have specific mandates and must deploy capital within a certain period of time, in some cases forcing them to pay too much for assets that meet their mandates.

David Roth, head of US Real Estate Private Equity for Ares, made a nod to this situation with his description of the new fund’s “flexible mandate.”  Looking ahead, he said in prepared remarks, “the unprecedented change in space utilization has potentially widened the opportunity set for both attractive undercapitalized assets and assets within sectors experiencing accelerated demand.”

Ares says the fund has garnered significant demand from a diverse set of investors from the Americas, Middle East, Asia, and Europe, including sovereign wealth funds, public pensions, insurance companies, foundations, family offices and private banks.  It has received support from its incumbent investor base and attracted new investors as well, it also said.