The US-headquartered international fund manager specialises in under-managed assets and is launching its third European investment fund
International fund manager Apollo Real Estate is set to launch its third pan-European investment vehicle. The new fund will have spending power in excess of $1bn (€0.7bn) and will be seeded by the firm’s recent purchase of the Merter shopping centre development in Turkey.
The vehicle is intended to reflect the investment strategy of the company’s two other pan-European vehicles, which are now both fully invested. Worth more than their combined value, the new fund will target corporate disposals, under-managed portfolios and large single assets throughout Europe.
Apollo is a privately held, employee-owned fund management group that focuses on ill-run and distressed assets in major urban areas. Formed in 1993, and with its headquarters in New York, the company has been doing deals in Europe only since 1995. The fund manager has invested more than $30bn (€20.3bn) in total across its targets of the US, Europe and Japan.
Since turning its gaze to the Continent, Apollo has invested some $2bn across 14 European countries, buying retail, office and logistics assets in the UK, Germany, Poland, France and Spain. However, the firm is focused on European retail property – the sector constitutes more than 30% of its European investment portfolio.
Of its European portfolios, the Universal portfolio comprises 76 mixed German assets. The company’s 603,870 m² Metro retail portfolio includes 26 shopping centres in Poland. The fund manager also has 55,742 m² of offices in France and 98,577 m² of mixed assets in the UK.
Apollo’s clients include pension funds, sovereign wealth funds, banks and insurance companies. Returns are achieved through active asset management, as well as developing, renovating, operating, financing and selling investment-grade properties. For this, the firm relies heavily on local joint venture partnerships.
All of its European investments are sourced and managed by its 19-strong London team, headed by William Benjamin. “The size of deal we are interested in is no less than €100m, because we are a relatively small team and must use our time effectively,” he explains. The firm funds each deal with 20-25% equity.
Seeking the fundamentally sound
Apollo targets what it believes are fundamentally sound but ill-managed, income-producing assets, which can be adapted to enhance their market value. The company also seeks properties with development potential as second-tier investments. “Two-thirds of what we do involves asset management. The remaining third is development,” explains Benjamin. “We focus on the concept of value rather than growth because we want to control the factors for success.” Last year, Apollo sold a 23,600 m2 shopping centre in the German town of Baden Baden to fund manager Henderson for €85m.
Apollo pursues assets held by financial institutions, government bodies, developers and public and private companies. It welcomes opportunities involving financial, regulatory or tax complications, to which its professionals can apply their experience. But the fund manager prefers not to bid for assets, and instead negotiates its deals in private.
In addition to its opportunity funds, Apollo operates a lending and debt investment vehicle – the Apollo Real Estate Finance Corporation. Designed to provide clients with subordinate financing solutions, the mezzanine loan vehicle has a lending capacity of $2bn. The company plans to further expand its lending business throughout Europe this year.
Apollo recently teamed up with shopping centre developer Multi Turkmall to buy Carrefour’s 333,770 m² Merter development in western Istanbul for €267m. On top of the initial cost, a further €325m has been committed to the retail and office scheme, which is due to complete in 2010.
A two-building complex
The complex will comprise two separate retail blocks: a 21,205 m² hypermarket and 16,000 m² office building. Carrefour will occupy the anchor store, which, under the terms of the deal, is being custom-built for the French supermarket chain. Apollo is in negotiations with several international retailers for space within the scheme.
The site is on one of Istanbul’s busiest roads, the E5 motorway, which is a major link to the city’s Atatürk airport. It has a catchment area of 2.8m people and is not far from a metro rail station. “We were attracted to Merter because it is a large site with good access,” says Benjamin.
“Plus, Carrefour had already obtained planning consent for the development, so a lot of the risk had been mitigated. The deal was practically oven-ready,” he says, adding that Apollo was approached with the transaction, rather than having actively pursued it.
With a population of around 70m concentrated in major cities such as Istanbul, Ankara and Izmir, Turkey is enjoying robust economic growth and rising consumer demand. GDP is forecast to grow by 6% in 2008-09, up from around 5.5% during 2007. Strong macro-economic fundamentals are one of the main reasons that Apollo is attracted to the region. “We like to invest in large economies of 40m-50m people because there are more opportunities to choose from,” says Benjamin.
However, with a growing metropolis such as Istanbul comes a flock of profit-hungry investors. The city is home to one-third of Turkey’s operating shopping malls and several more are at development stage. Despite a population of 13m, Istanbul is at risk of being saturated by retail schemes. But this possibility does not concern Apollo. “The supply of shopping centres is still quite low compared to other European countries,” says Benjamin.
Apollo has already capitalised on the country’s growing population through a joint venture with a local partner to renovate a residential development in Istanbul. The fund manager is also close to securing an office deal in eastern Europe. But the launch of its new $1bn plus pan-European investment vehicle will top Apollo’s agenda during the first quarter of this year.
Benjamin expects to be more choosy in the coming months, given today’s financial uncertainty. But he is not discouraged by the limited availability of debt. “There is still money available for selected deals in selected geographies,” he says.
