Apollo launches European real estate debt fund

Apollo Global Management has launched its first dedicated European real estate debt fund, targeting €1 billion in commitments, PERE has learned.

Apollo Real Estate Debt – Europe Fund I marks the first time the New York-based alternative asset manager is seeking to gather third-party capital to invest alongside its balance sheet capital to originate European real estate loans, according to a source familiar with the matter. In fact, Apollo to date has not raised an institutional commingled fund for its global real estate credit business, having previously closed on separately managed accounts or funds-of-one for the strategy.

Apollo declined to comment, but PERE understands the firm has begun meeting with global institutional investors about the fund. The split between Apollo’s balance sheet capital and the fund’s third-party capital in each loan can vary by transaction. Apollo will also make a GP commitment to the fund.

With the fund, Apollo will focus on originating mortgages backed by institutional-quality real estate in the UK and continental Europe. Targeted loans would include senior secured, subordinate and whole loans collateralized by stabilized, transitional and development assets. The mortgages would be floating rate and typically have a five-year maximum term with institutional borrowers.

As a reflection of different investor risk-return appetites, the fund will include both levered and unlevered sleeves targeting a net levered IRR of 11 percent and a net unlevered return of 7 percent, respectively. The vehicle will also be classified as an Article 8 Fund under the European Commission’s Sustainable Finance Disclosure Regulation.

Apollo Real Estate Debt – Europe Fund I is the fifth-largest European real estate debt fund in market, according to PERE data. It is one of at least seven vehicles targeting $1 billion or larger for the regional strategy, the data showed. The largest of these is Cheyne Capital Management’s Cheyne Real Estate Credit Capital Solutions, which has a $3.16 billion target and has amassed $822.5 million to date.

PERE understands that Apollo believes it is an opportune time to ramp up investment in European real estate credit because higher interest rates have put downward pressure on real estate valuations, which has driven borrowers to seek refinancings, recapitalizations and sales. Meanwhile, traditional real estate lending sources in the UK and Europe continue to retrench.

Since establishing its European real estate credit team in 2013, Apollo has deployed nearly $19 billion in the strategy across the UK and Europe. 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 with nearly $75 billion in deployment to date. The global platform originates more than $10 billion in mortgages annually, of which 25 percent is in Europe.

Recent real estate credit deals include the €500 million financing of StepStone Group and Proprium’s €800 million acquisition of German hostel chain A&O Hotels and Hostels; a £250 million ($218 million; €289 million) loan to Cain International for the development of purpose-built student accommodation projects in the UK; and a €118 million financing to Carlyle for French self-storage company Locabox.

Commercial real estate credit, along with core-plus and special situations, is one of three strategies under Apollo’s European real estate business, which had $24 billion in assets under management and 44 investment professionals as of December 31, 2023, according to a March 2024 presentation on the firm’s European real estate platform.

Globally, Apollo managed $48 billion in commercial real estate debt assets as of year-end 2023, of which $11 billion was 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 representing $13 billion and $15 billion, respectively, as of December 31.