Apollo’s Harris: RE business is ‘too small’

Most of the firm’s gains in real estate have stemmed from its real estate debt business, the co-founder said on the firm’s earnings call.

Apollo Global Management co-founder Josh Harris is looking to grow the firm’s real estate business, he said on the New York-based firm’s earnings call Friday.

The firm managed a total of $188.6 billion in assets as of September 30, of which $11 billion was in real estate, up from a $161.8 billion total in the same quarter last year, including $10.8 billion in real estate.

“[Real estate] is not significant enough. It’s too small,” Harris said. “In order to grow it organically, it will continue to be relatively slow growth. We are actively looking at where there might be some acquisition opportunities in the real estate business that would make it more significant to our company.”

Harris noted that real estate comprises a number of individual platforms, including Apollo’s various debt and equity funds as well as the firm’s portfolio of legacy assets that came with its purchase of Citigroup’s real estate business in 2010. Apollo’s acquisition of Citi Property Investors tripled its real estate assets under management with the addition of 65 assets in 26 countries with a total net asset value of $3.5 billion, the New York Times reported at the time. Since that acquisition, Apollo has been selling the various assets.

“When you see the real estate business, you’re seeing all those pieces in the mix,” Harris said. “The overall business maybe looks a little flatter than the underlying growth in the debt business.”

The company has been a net seller in real estate this year, with $611 million in realizations last quarter compared with $567 million deployed across debt and equity, and $2 billion in realizations in 2016 to date compared with $1.6 billion in investments.

The firm’s US Real Estate Fund I generated net returns of 5 percent in the first nine months of the year, and 13 percent since inception. Apollo said in its earnings report that it did not disclose returns for its second opportunistic US fund because its investment period began less than 24 months ago and “therefore such return information was deemed not meaningful.” US Real Estate Fund II had $651 million in committed capital, including $178 million of co-investment commitments, as of September 30, according to its second-quarter earnings report.

Apollo is in the midst of fundraising for Apollo Asia Real Estate Fund, which it launched in March, according to a filing with the Securities and Exchange Commission. Investors include the Michigan Department of Treasury, which allocated $75 million to the opportunistic vehicle and $25 million for co-investment, according to board meeting documents.

The firm’s real estate debt and equity platforms brought in $3.4 million in economic net income (ENI) compared with $230.8 million for the Apollo’s overall business in the third quarter, according to the earnings report. In the third quarter of 2015, real estate lost $800,000 and the overall business had $104 million in ENI.