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Apollo sees “significant opportunity” in own-to-rent business

The New York-based alternative investment manager is the latest private equity firm to announce plans to invest in single-family rental homes in the US.

As it works to expand its real estate business, Apollo Global Management is eyeing an entry into the buy-to-rent housing market. “We do see a significant opportunity in the own-to-rent business,” said Marc Spilker, Apollo’s president, during an earnings call today. He noted that foreclosed homes offered “an interesting cash-on-cash yield” and was “a segment of the market that needs capital.”

Single-family rental housing “is going be an interesting segment to allocate capital to, and we’re going to do so in the context of the size of our funds,” Spilker added. “That’s something that I think will be a growing opportunity.”

Apollo is the latest private equity firm to go public with its plans to invest in the single-family rental housing market. GI Partners, a Menlo Park, California-based private equity firm, announced in January its intention to invest up to $1 billion in single-family rental homes in the US, in partnership with Waypoint Real Estate Group, an Oakland, California-based private equity real estate firm. Meanwhile, New York-based Och-Ziff Capital Management formed a partnership with 643 Capital Management, a California-based real estate investment firm, last year to acquire at least 500 foreclosed homes this year.

Spilker said Apollo also is focused on real estate debt, with the firm’s debt-oriented real funds continuing to target real estate-related loans and securities in the US, including opportunities in mezzanine loans and commercial and residential mortgage-backed securities. He noted that Apollo is actively deploying capital from its separate accounts into debt-oriented real estate investments, investing $407 million of capital in commercial real estate debt during the second quarter. Meanwhile, Apollo’s AGRE US Real Estate Fund, which closed on $713 million in commitments in April, to date has committed 30 percent of its capital to a variety of investments, he said.

Apollo’s real estate business reported $0.6 million in economic net income (ENI) for the second quarter, its first quarterly gain since the second quarter of 2011, when ENI was $2.5 million. The year-over-year decline was largely the result of a one-time $8 million gain during the second quarter of 2011 relating to the reimbursement of costs that previously were incurred by the launch of Apollo Commercial Real Estate Finance, its commercial real estate finance company, in 2009.

Total revenues for real estate were $17.7 million during the second quarter, up 82 percent from $9.7 million during the same period last year, which was attributed to a $4.2 million increase in total carried interest income. Apollo had $7.9 billion in real estate assets under management as of 30 June, up from $7.6 billion on 30 June 2011.

Apollo reported an overall ENI of $42 million, down 66 percent from the second quarter of 2011, with the decrease driven primarily by a $28.4 million loss in the firm’s incentive business. The investment manager’s total AUM grew from $71.7 billion during the second quarter of 2011 to $104.9 billion at the end of June.