In a recent Bloomberg TV interview with Sonali Basak, Michael Arougheti, CEO of Ares Management, shared insights into how rising interest rates could drive M&A activity in 2025. He explored the shifting competitive dynamics in private credit, Ares Management’s strategic approach to real estate investing, and the challenges and opportunities presented by their record-breaking fundraising efforts in 2024.
Arougheti provided a forward-looking perspective on how his firm is positioning itself for success in 2025 and beyond, leveraging opportunities in the evolving private credit and real estate markets. Of particular interest to the Hawkins Commercial Realty audience, the embedded video below begins at the 6:18 mark, where Arougheti discusses strategies for navigating commercial real estate opportunities in 2025.
While this discussion is primarily national—and even international—in scope, some observations may not directly apply to Miami or other South Florida markets. However, it offers valuable context for understanding broader trends influencing the commercial real estate landscape.
The Hyper-Local Nature of Real Estate
Arougheti emphasized that success in real estate hinges on a hyper-local understanding of markets. “It matters not just what market you’re in, but what street and what street corner you’re on,” he noted. This granular approach requires a broad footprint and diversified capabilities, allowing firms to adapt to local dynamics and seize specific opportunities.
Key Opportunities and Challenges
The real estate market presents a mix of pain points and growth areas:
- Office Space Distress: The sector continues to face headwinds, offering potential opportunities in distressed or transitional assets for those with the right strategy.
- Data Center Growth: Despite concerns about overexuberance, data centers remain a promising avenue, driven by increasing demand for digital infrastructure.
- Industrial Real Estate: Ares Management is making significant investments in industrial assets, capitalizing on the global supply chain realignment.
- Undersupplied Market: Years of headwinds have left the real estate market fundamentally undersupplied, creating tailwinds for asset value preservation and new development.
Rates and Economic Stability: Drivers of Real Estate Value
According to Arougheti, the trajectory of interest rates will play a critical role in shaping the real estate market. Stability, rather than rapid changes, is key to fostering growth and driving transaction volumes. Coupled with ongoing economic strength in the U.S., stable rates could create a conducive environment for real estate investments in 2025.
A Diversified Real Estate Strategy
Ares Management employs a comprehensive approach to real estate investment, covering a wide range of asset classes:
- Core Exposures: Multifamily and industrial real estate have been the firm’s largest areas of focus.
- Emerging Markets: Ares is expanding its investments in data centers, student housing, and self-storage facilities, which align with shifting demographic and economic trends.
- Opportunistic Capital: Large pools of capital are allocated to both opportunistic real estate equity and debt, enabling the firm to capitalize on distressed and transitional opportunities.
Distressed Opportunities: A Strategic Play
The distressed real estate market offers two key avenues for investment:
- Secondary Market Opportunities: Acquiring quality assets at attractive valuations.
- Primary Market Dynamics: Changes in competitive dynamics, such as banks reducing their exposure to commercial real estate, can create openings for well-positioned firms.
Arougheti emphasized the importance of flexibility in responding to these scenarios. “You have to be prepared for either outcome,” he stated, underscoring Ares Management’s readiness to adapt to shifts in the market.
Looking Ahead to 2025
With its diversified portfolio and strategic focus, Ares Management is well-positioned to navigate the complexities of the real estate market in 2025. As rates stabilize, economic growth persists, and supply-demand imbalances continue, the firm anticipates significant opportunities for growth and value creation.
For Ares and other industry leaders, success will hinge on staying agile, leveraging scale, and maintaining a deep understanding of market dynamics. As Arougheti concluded, “You’ve got to pick your spots,” and Ares is poised to do just that.