Apollo posts $26m loss on real estate for 2011

Apollo Global Management’s real estate earnings continued to slide in 2011, ending the year with a total net loss of $25.9 million, further widening the $11.5 million loss that the firm recorded in 2010. The New York-based private equity and real estate firm finished 2011 with real estate losses in three out of four quarters. This included the fourth quarter, for which Apollo recorded a net loss of $15.4 million, slipping from negative earnings of $5.4 million at the end of the third quarter and from a net loss of $14 million during the same period one year ago.

Part of the problem is that the alternative asset manager made few real estate investments in 2011. In the US, the firm formed a joint venture with Driftwood Hospitality Management to acquire and reposition full-service hotels in secondary markets. The partnership, which was made through Apollo’s AGRE US Real Estate Fund, so far has acquired two hotels, said Marc Spilker, president of Apollo, during an earnings call today. Total capital raised through the AGRE US Real Estate Fund has remained unchanged from the end of the third quarter, when Apollo revealed that it had raised a total of $384.9 in commitments for the fund, including $134.9 million in base capital and $250 million in co-investment commitments, according to the firm’s year-end earnings report.

The US fund’s lacklustre capital raise, as well as the limited number of US real estate acquisitions, were said to be the driving factors behind the recent ouster of Raymond Mikulich, Apollo Global Real Estate’s North America head, as well as additional cuts to the North America team that include Jon Thompson, who was responsible for marketing the US fund.

Meanwhile, Apollo announced today that it had closed on the purchase of the Novotel New York Times Square hotel in partnership with Chartres Lodging Group, also on behalf of its US fund. In addition, Spilker said the firm continues “to see attractive opportunities in mezzanine loans and both commercial and residential mortgage-backed securities.” Apollo manages a variety of funds that invest in real estate loans and securities, including its CPI Capital Partners and AGRE Debt Fund I vehicles.

Spilker noted that “real estate opportunities are developing at a slower pace in Europe relative to the US.”  Last week, Apollo announced a venture with Canada’s Ivanhoé Cambridge and UK real estate company Residential Land to purchase multifamily properties in London, including four initial investments in the prime districts of South Kensington, Lancaster Gate, Bayswater and Marylebone.

Apollo reported an overall net loss of $300.5 million for 2011, compared to net income of $1.3 billion in 2010, which largely got a boost from the firm’s acquisition of Citi Property Investors. Net income during the fourth quarter dropped to $356.6 million from $925.9 million during the same period one year ago. Total assets under management were $75.2 billion for the year, rising from $67.6 billion in 2010.  Real estate AUM was $8 billion at the end of 2011, compared to $6.5 billion from year-end 2010.