ARA sets its sights on Europe after tie-up with Dunedin

Within the space of just six months, Singaporean real estate fund manager ARA Asset Management has announced two big leaps in its strategy to build out a UK and European business. Last July, the group, which has about S$100bn (£56bn) in assets under management across its various divisions and joint ventures, revealed a tie-up with Dunedin Property Asset Management. The jv marked ARA’s first foray into investing in and managing UK assets, and its first direct management platform in Europe. The group then capped 2019 with the announcement in late December of a new real estate debt platform, set up with London-based specialist real estate debt investor Venn Partners. These deals, alongside a push from ARA’s private funds business to help European investors put money to work in Asia, underline a growing appetite from the group to do business on the continent. Mark Ebbinghaus, chief executive of the ARA Europe division, says his part of the business could account for “10-20% of the overall pie” in terms of AUM over the next three to four years as it grows organically and potentially through acquisitions. From value-add to core The ARA Dunedin jv is expected to attract about £1bn in assets under management each year, Ebbinghaus says. That target, he adds, could see the venture expand its horizons across the English Channel to Europe, although he admits that yields probably make the UK “look more attractive” than other countries for now, “particularly in the office space”. Dunedin’s track record is in value-add office and logistics assets. ARA plans to grow that part of the business predominantly with local partners and possibly topped up with Asian capital. Ebbinghaus explains that ARA invested in Dunedin because of its track record in value-add – it is easier to venture into core opportunities from that starting point than vice versa, he says. “We can do core within that platform – but you can’t do it the other way around,” he says. “If you get a team that has only really done core, it’s almost impossible to go the other way because you don’t have the skillset to do value-add.” In terms of scalability and windows of opportunity over the next 18 months, we see the credit space as quite interesting – Mark Ebbinghaus, ARA Europe Indeed, the business will look at making core investments through the same platform. “Some of our capital partners in Asia, whether it’s a REIT, Korean group or one of the funds, are probably more focused on the core, core-plus space,” Ebbinghaus says. One core deal in the works in London is for CPPIB’s 50% stake in Nova, the mixed-use development in Victoria, SW1, that CPPIB owns with Landsec. With its more recent joint venture with Venn Partners, ARA Europe is aiming to capitalise on Europe’s active debt market. Once the venture receives regulatory approval, it will be branded ARA Venn. ARA is already planning to add to Venn’s products as it targets the business adding “a couple of billion pounds in AUM every year”, Ebbinghaus says. Currently Venn has about £2.7bn in AUM and another £2.5bn in capital commitments, giving a starting point of roughly £5.2bn. “In terms of scalability and windows of opportunity over the next 18 months, we see the credit space as quite interesting,” Ebbinghaus says, explaining that with banks retreating from higher risk loans to the real estate market, growing debt requirements and strong investor demands, ARA can see plenty of growth opportunities. “For example, funding groups from Korea probably have a preference for investing in debt rather than investing in equity and going further afield and up the risk curve,” he adds. “They probably feel more comfortable having a higher level of protection via the debt route than the equity route. “The Koreans have been quite used to buying nice, shiny towers and simple sorts of product in the equity space, with long-term leases. I think we’ll see a number of capital partners coming out of Asia, including Koreans, for whom having that extra level of protection via a debt structure is quite attractive.” In addition, ARA Venn will look to broaden its geographical offering into continental Europe. The group already has an office in Spain and an affiliate office in the Netherlands. Ebbinghaus foresees it establishing another office and building on its residential offering there and a potential move into the infrastructure space. Venn’s track record in the residential sector includes landing the role of delivery partner in 2014 for the UK government’s £3.5bn Private Rented Sector Guarantee Scheme. Taking Europe to Asia Over time, Ebbinghaus thinks that Venn could also be part of ARA’s push to take European capital into Asia. This is currently being led by ARA’s private funds business, which has US$8bn (£6.1bn) AUM and, according to Jae Choi, head of capital markets at ARA Private Funds, has found there to be “appetite” to invest in Asia from institutions and family offices in Europe as they search for yield and to enable diversification. Its value-add fund currently has four assets totalling US$430m and plans to continue to grow that strategy to about US$750m, but the business is also looking to launch a US$1.5bn+ core and core-plus strategy this year, particularly as Asian cities such as Singapore and Seoul develop more of these types of assets. Within both funds, the option to invest directly in assets is available to investors. The value-add fund is targeting between 15-17% gross return and the core fund 9%-11%. Choi said that the business already has the seed assets to provide the foundation and core income for the new fund and, once launched, it will look for under-managed or unattended assets that can be brought back up to core grade to add to it. To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette