Apollo closes on US real estate fund

The New York-based private equity real estate firm has held a final close for its US real estate vehicle, which initially had fundraising challenges but ultimately exceeded its $650 million target. The capital raise was bolstered in part by a sizable commitment from Texas Teachers.

Apollo Global Management
 has wrapped fundraising on its AGRE US Real Estate Fund with a total equity haul of $713 million in commitments, according to the firm’s first quarter earnings results. The Teacher Retirement System of Texas was a large investor in the fund through its $3 billion long-term strategic relationship with the New York-based private equity firm, according to sources familiar with the matter.

In addition, Apollo raised $72 million of co-investment capital for an investment during the first quarter of 2012, although the total amount of co-investment dollars raised will depend on the size of future deals. That co-investment capital is subject to LP discretion in terms of how the money is deployed and is not subject to fees.

As of 31 March, the firm had raised $385 million in base and additional capital – under which investors pay different fees than that of base capital, according to the results. With both types of capital, however, Apollo will have discretion over the fund's deals. PERE understands that the remaining capital for AGRE US Real Estate was collected last month, when the vehicle held its final close.

Apollo had taken heat over the slow pace of fundraising, which was said to be one of the reasons behind the exit of its North America real estate head, Raymond Mikulich, in January. The fund, which had a target of $650 million and a hard cap of $750 million, held closings in January 2011 and June 2011, but fundraising had remained unchanged since then, according to the quarterly results.

However, Apollo was said to be talking to existing clients in its other real estate funds or business lines to raise new capital for AGRE US Real Estate and was expected to close on at least $200 million in additional commitments during the first half of the year. Indeed, following the end of the first quarter, the firm received a couple of sizable commitments from investors, including Texas Teachers, sources said. In addition, the $110 billion US pension plan is expected to make substantial co-investment commitments in the fund's future deals. 

While it is unclear how much of its capital has been deployed, AGRE US Real Estate has closed on several investments to date, including a joint venture with Driftwood Hospitality Management in 2011 and the purchase of the Novotel New York Times Square hotel in partnership with Chartres Lodging Group during the first quarter.

Meanwhile, Apollo’s real estate business reported an economic net loss of $4.8 million in the first quarter, compared with an economic loss of $7.6 million during the same period one year ago. Total real revenues during the first quarter were $12.1 million, up from $9.3 million in the first quarter 2011. As of 31 March, Apollo’s real estate AUM stood at $8.3 billion, up from $6.5 billion at the end of the third quarter 2011, as a result of new fund launches.