Apollo Global Management is launching its first European real estate bond fund, aiming to invest 1 billion euros, according to PERE.
Apollo Real Estate Debt Europe Fund I will be the first time the New York-based alternative asset manager has sought to raise third-party capital to invest alongside its balance sheet capital to originate European real estate loans, according to sources familiar with the matter. Indeed, Apollo has not previously raised an institutional commingled fund for its global real estate credit business, having previously raised a separately managed account, or fund of one, for the strategy.
Apollo declined to comment, but PERE understands the company has begun discussions with institutional investors globally about the fund. The allocation of Apollo's balance sheet capital in each loan and the fund's third-party capital may vary by transaction. Apollo also intends to make general partner commitments to the fund.
With this fund, Apollo will focus on originating residential mortgages secured by institutional real estate in the UK and continental Europe. Loans include senior secured, subordinated and full loans secured by stable, transitional and developed assets. The mortgages will have floating interest rates and institutional loans will typically have tenors of up to five years.
Reflecting investors' differing risk/return preferences, the fund includes both leveraged and unleveraged sleeves, targeting a leveraged net IRR of 11% and an unleveraged net return of 7%, respectively, and is classified as an Article 8 fund under the European Commission's sustainable finance disclosure rules.
Apollo Real Estate Debt Europe Fund I is the fifth-largest European real estate debt fund on the market, according to PERE data. The fund is one of at least seven in the regional strategy targeting more than $1 billion, according to the data. The largest of these funds is Chain Capital Management's Chain Real Estate Credit Capital Solutions, which has a target of $3.16 billion and has raised $822.5 million to date.
PERE understands that Apollo believes now is an opportune time to increase its investments in European real estate credit as rising interest rates put downward pressure on property valuations and lead borrowers to seek to refinance, recapitalise or sell, while traditional sources of real estate lending in the UK and Europe continue to contract.
Apollo has deployed nearly $19 billion in strategies across the UK and Europe since establishing its European real estate credit team in 2013. Led by Ben Eppley, the European Real Estate Lending business is part of the firm's Global Real Estate Credit platform, which was established in 2009 and has committed nearly $75 billion to date. The global platform originates more than $10 billion in mortgages annually, 25% of which are in Europe.
Recent real estate credit transactions include a €500 million loan to StepStone Group, Proprium's acquisition of German hostel chain A&O Hotels and Hostels for €800 million, a €250 million ($218 million, €289 million) loan to Kane International for the development of purpose-built student accommodation projects in the UK, and Carlyle's €118 million loan to French self-storage company Rocabox.
Commercial real estate credit is one of three strategies, along with core-plus and special situations, in Apollo's European real estate business, which has $24 billion in assets under management and 44 investment professionals as of Dec. 31, 2023, according to a March 2024 presentation on the firm's European real estate platform.
Apollo has $48 billion of commercial real estate debt assets under management globally as of the end of 2023, of which $11 billion is in European real estate credit. Commercial real estate credit is the largest of the firm's three global real estate strategies, with income strategies and platforms, co-investments and special situations totaling $13 billion and $15 billion, respectively, as of Dec. 31.