Apollo sees more real estate opportunity in Europe

The New York-based private equity and real estate firm expects deal flow to pick up in the region as financing becomes more available.

While it has made a greater number of real estate investments to date in the US, Apollo Global Management has an eye on stepping up its activity in Europe.

“Real estate is emerging as a little bit more of an opportunity than maybe we would have thought one year ago in Europe,” said Marc Spilker, Apollo’s president, during an earnings call on Friday. 

The increased investment opportunity largely has to do with bank activity in the region, Spilker said. While some European banks will need to continue to sell off assets, global financial institutions with healthier balance sheets will be looking to put capital to work in the region. 

“There are certain parts of the market in Europe that have a greater ability to get financed today versus maybe six months or one year ago,” said Spilker. “We believe that will facilitate more transactions.”

To date, Apollo has announced two real estate investments in Europe, both in 2012: the launch of a partnership with Ivanhoé Cambridge, the real estate subsidiary of Caisse de dépôt et placement du Québec, and Residential Land to purchase residential properties in London; and a joint venture with UK-based property firm Glebe Asset Management for the acquisition of a data center site in London. Roger Orf, partner at Apollo, leads the firm’s European real estate business.

Apollo, however, has completed more real estate deals in the US thus far. Most recently, in December, the firm announced the acquisition of the DoubleTree Suites by Hilton Columbus Downtown, through a joint venture with Driftwood Hospitality Management. The hotel was the fifth property purchased through the joint venture, which was formed in July 2011 to focus on purchasing, renovating and rebranding hotels throughout the US. That transaction was made on behalf of Apollo’s AGRE US Real Estate Fund, which closed on a total of $785.2 million in commitments last year. To date, the firm has invested $202.7 million of the fund’s capital, according to its fourth quarter and full-year 2012 earnings results.

Apollo reported an economic net loss of $2.1 million for its real estate business during the fourth quarter, an improvement from a $15.4 million loss for the fourth quarter of 2011. The firm also saw a loss of $8 billion in real estate for the full year 2012, with three out of the four quarters ending in losses. However, the results were an improvement over full-year 2011, when the firm carried a loss of $25.2 billion in real estate.

The loss in real estate contrasted with Apollo’s overall financial results, which showed economic net income of $1.6 billion for 2012, rebounding from an economic net loss of $300.5 million during the same period in 2011. The firm attributed the change to favorable performance in both Apollo’s management and incentive businesses.

As of December 31, Apollo reported $8.8 billion in real estate assets under management (AUM), compared to $8 billion at the end of 2011. Apollo’s total AUM was $113.4 billion as of December 31, an increase of 51 percent from $75.2 billion one year ago.