Ares Management And Regis Group Looking To Buy Land Under CRE Properties

Ares Management Corp. and Regis Group have partnered to acquire land under commercial buildings, which they say will offer a way for companies to raise capital, especially if they need it to get through the current economic crisis.

The ground lease strategy is a variation on sale-leasebacks. Rather than sell an entire property and then lease it back, the deal only involves the land. 

Separate ownership of buildings and land is relatively common in the United States only in New York and a few other places, Green Street's Real Estate Alert reports, but it is growing in popularity elsewhere. Ares and Regis will not be alone in their hunt for U.S. ground lease opportunities. Safehold, a REIT, reports that it is doing well in that business, despite the impact of the pandemic on commercial real estate.

"It's also been good to see the safety of our ground leases, once again, highlighted with 100% rent received during the quarter and the strong growth in our earnings and revenue from the same quarter in 2019," Safehold CEO Jay Sugarman said during the company's most recent earnings call, in late October.

"As Safehold continues to expand its footprint across the country, we are seeing further evidence that the low-cost long-term capital provided by our modern ground lease can unlock value for building owners in a wide variety of situations," Sugarman said.

The new entity launched by Ares and Regis is called Haven Capital, and it will seek investments nationwide in a variety of property types. The partners didn't say how much of an investment they are making in the venture.

London-based investor Regis brings its real estate experience to the table. It has invested about $16B in CRE in the U.S. and the U.K., plus an additional $7B in affordable housing in the U.S. Los Angeles-based Ares has about $179B of assets under management, with about $14.4B of that in the form of real estate equity and debt, or about 8% of the total. 

Ares is also expanding into single-family rentals.

"Just last week, we announced that we're partnering with a specialized asset manager and [takin] private a public single-family rental company, where we see an opportunity for value creation," Ares CEO Michael Arougheti said during the company's most recent earnings call, also in late October.

"This last deal is a perfect example of how we're collaborating more actively across our platform and leveraging our scale, our deal flow and unique market information to navigate the current environment," he said.

Ares is also an active buyer of properties in Europe. Last year, it closed its fifth European opportunity fund at about $2.1B of equity, well ahead of its target and making it the largest real estate fund Ares has ever raised. The fund is looking for opportunities in the U.K., where it has recently bought and leased 68 King William St. in London.