Center of the action

On a cold December afternoon in New York City, the Time Warner Center is bustling. Tourists are browsing for holiday gifts at Williams-Sonoma, Gucci-clad mothers are squeezing organic avocados at Whole Foods and businessmen with extra time and money on their hands are finishing a $300-per-person lunch at one of the city's most expensive restaurants. Small wonder, then, that Lee Neibart is smiling.

As one of two senior partners at Apollo Real Estate Advisors, Neibart oversees a worldwide portfolio of property assets that spans from Beverly Hills to Warsaw to the ground beneath his feet—and the feet of the millions of shoppers, hotel guests and restaurant customers who have visited the Time Warner Center, the largest investment in Apollo's portfolio.

Neibart's own office sits twenty floors above the fray, a comfortable oasis from the activity below. It is an airy, well-appointed space with black-and-white pictures of the golfer Ben Hogan lining the walls and photo books of skyscrapers on the coffee table. Reallife skyscrapers loom just outside, the room's windows providing majestic views of Central Park and Midtown Manhattan. In fact, this lofty perch may be a fitting location from which to survey both the history of Apollo Real Estate Advisors, one of the most active investors in the New York City market, and Neibart himself, one of the men responsible for making it so.

Neibart joined Apollo in 1993, shortly after Bill Mack founded the firm in partnership with Leon Black, the former Drexel trader who also started Apollo Management, one of the largest leveraged buyout firms in the world. The firm's first opportunity fund, a $500 million vehicle, primarily focused on US distressed assets in the wake of the country's Savings and Loan crisis. Since then, Neibart and his team have built an empire that encompasses a myriad of property sectors and geographies, from apartment buildings in New York City to hotels in Hawaii to shopping centers in Poland.

“In 1993, we saw that the opportunities were unlimited,” Neibart says. “I was excited because I never envisioned that a vehicle existed like Apollo. We were really able to just take an idea, execute on it and then build it into a brand name that does business all throughout the US and Europe.”

Yet despite the firm's global reach, the breadth and diversity of Apollo's worldwide business is perhaps best reflected at home, in the shimmering glass towers of the Time Warner Center. Built in conjunction with The Related Companies at a cost of $1.7 billion, the mixed-use project defines the term mixed-use: 1.1 million square feet of office space; 338,000 square feet of retail shops; 201 luxury condominiums; a 251-room Mandarin Oriental hotel; a 500-space parking facility; and, just for good measure, a jazz theater that seats 1,100 Wynton Marsalis fans. And all in the heart of central Manhattan.

It was not a project for the faint of heart.

The task of redeveloping Columbus Circle— located at the southwest corner of Central Park and one of the prime pieces of New York City real estate—had bedeviled city planners and tycoons, including William Randolph Hearst, Robert Moses and Mort Zuckerman, for almost 75 years. Those ghosts plagued Apollo as well: two workers died during construction; the condominiums went on sale two weeks before 9/11; a fire ravaged the jazz theater, injuring a dozen firefighters; community activists filed a lawsuit to halt development; and critics from restaurateurs to retailers to architects questioned the project's high-end dining and vertical retailing concepts— Paul Goldberger, the architectural reviewer for The New Yorker, described the Center as “a theme-park version of a sophisticated urban building.”

Of course, the only critics that really matter are the well-heeled shoppers, music enthusiasts and apartment owners who have enthusiastically welcomed the new development. An article last year in the New York Sun, titled the “Time Warner Center Effect,” described how the complex had re-energized the neighborhood, spurred other developments and lifted the value of the surrounding real estate—brokers now market nearby space as “close to Time Warner Center.”

“Columbus Circle is a location that people are now flocking to,” Neibart says. “We never really knew the draw and power that this would have on everything else, but you can just see what it has done for the entire West Side.”

It has also done something for Apollo—and its limited partners. The private equity real estate firm and Related have already recouped more than their initial equity investment while still retaining ownership of the few remaining condos, half of the retail, a portion of the office space and half of the Mandarin Oriental Hotel.

Not bad work for such a simple project—simple, at least, by Neibart's standards.

“Everyone thought [the Time Warner deal] was really complex,” he says. “But once we were awarded the deal, it really was not as complicated or as risky as people thought. In the end, we had to rent the retail and we had to sell condominiums.”

REAL ESTATE SKILLS
Neibart's straightforward synopsis of the largest development in recent New York City history may have something to do with his background. Not only has the 54-year old spent his entire professional career in the real estate business, he also spent much of it in property development.

“New York affords us the opportunity to explore. The city just continues to grow and there is tremendous opportunity all throughout the five boroughs. New York is not just 57th Street and Park Avenue.”

Neibart got his start in the industry in 1974, after graduating from NYU business school. Initially, he interviewed at several accounting firms, but soon realized that debits and credits was not the career he was looking for. “So I answered a blind ad from Prudential,” he recalls, pointing out that the insurance giant had just started a new development arm. It was a fortuitous match. For the next five years, Neibart was part of a team that developed some of the largest projects in the country and he was actively involved in all aspects of the process, from property management to leasing to finance to construction.

Neibart's next job was at the Robert Martin, a firm he had gotten to know while at Prudential and one of the largest industrial developers in Westchester County. He stayed there for fourteen years, rising to the position of executive vice president and chief operating officer, building millions of square feet of industrial-flex and office space in the process. After spending nearly a decade and a half investing in the greater New York area, Neibart not only had a keen sense of the market, he also possessed a strong stable of contacts—the former would serve him well at Apollo; the latter would get him his job there.

“I had known Bill Mack casually,” Neibart says. “But through a mutual friend, Stephen Siegel”—now the chairman of Richard Ellis—“I knew that Bill was starting up Apollo Real Estate.”

Mack, a fellow developer, had built a sizeable portfolio of industrial and office properties that would eventually become part of Mack-Cali, one of the largest publicly traded REITs in the country. After hiring Neibart, the duo began building a team almost exclusively from the real estate community: many of the firm's partners have an average of 15 to 20 years in the industry.

“We believe that we understand the real estate business from all aspects of development, construction, leasing, finance and management,” Neibart says. “And we bring a unique real estate approach to it as a fund manager.”

Throughout the early 1990s, Apollo used those real estate skills, as well as the skills of its sister buyout fund, to focus on distressed properties— several notable assets purchased during that time include the famous Clift Hotel in San Francisco, four Manhattan office buildings from beleaguered Fuji Bank and the bonds of troubled real estate developer Olympia and York. As the decade rolled on, Apollo went looking for opportunities elsewhere, buying Allright Parking, one of the nation's largest owners of parking lots; developing ChampionsGate, a hotel and golfing complex in Orlando, Florida; and backing Criimi Mae, a bankrupt mortgage REIT, in its emergence from Chapter 11.

Over the years, the firm has also branched into different geographies, asset classes and investment strategies. In the mid-1990s, Apollo began investing in Europe. In 2004, the firm launched a $100 million real estate mezzanine fund in partnership with GMAC. That same year, Apollo bought a controlling interest in VEF Advisors, a value-added fund manager formerly owned by Lend Lease. A small, real estate-focused hedge fund soon followed.

Though such a diverse set of investment vehicles may be unusual in the private equity real estate world, Neibart views Apollo's multi-pronged strategy as an advantage, one that not only gives the firm flexibility, but also plays to its expertise.

“We have real estate skills,” Neibart says. “And those real estate skills are adaptable to opportunity funds, value-added funds, mezzanine funds. A partner here may have been in the development business, but if that business is risky one day, there's no reason he can't be involved in making a very profitable mezzanine loan. We're capable of doing all different types of things.”

SPREADING APOLLO'S WINGS
Perhaps nothing demonstrates that statement better than the firm's growing presence in Europe. Although Apollo has been investing in the region since 1995, it wasn't until 2000 that the firm set up its own office and began building a dedicated team on the ground. In 2003, the firm closed its first fund specifically targeting the European market; a second vehicle followed last year.

Neibart credits the firm's success in Europe to a number of factors including Apollo's longevity in the region and the prowess of their London-based team, led by Bill Benjamin—Neibart points out that many of the senior members have been working with Apollo for a decade. He also highlights the firm's ability to move opportunistically throughout the continent.

“We think we were one of the first opportunity funds to go into Central Europe,” Neibart says. “And we've been very successful, not only in Western Europe but also Poland, Hungary and the Czech Republic.”

“We believe that we understand the real estate business…and we bring a unique real estate approach to it as a fund manager.”

A case in point: in 2004, Apollo purchased 28 shopping centers in Poland as part of a sale-leaseback transaction with Metro, a leading worldwide retailer. The acquisition, valued at more than €700 million, was reportedly the country's largest real estate transaction ever. Another European deal highlighted by Neibart was Apollo's £392 million purchase of 12 London office buildings from MEPC. To date, the firm, which partnered with Deutsche Bank and Europa Capital on the transaction, has sold off most of the properties, including the landmark Centre Point building on Tottenham Court Road.

We did very well on that one,” Neibart says.

Nonetheless, he is optimistic that Apollo's European arm can do even better—and grow even larger. “I have no doubt that down the road the European business will be every bit as big as the US business,” he says.

Apollo's plans are decidedly less ambitious for a region of the world much talked about by other private equity real estate investors: Asia. That's not to say that the firm stays away from the region—its first European fund invested 5 percent of its capital in Japan and the firm is currently exploring an Indian real estate fund that would be co-sponsored with a major Indian family. But all told, Neibart believes that Apollo is better served by concentrating elsewhere.

“The problem with Asia is we only have a limited number of people,” he says. “Goldman Sachs and Morgan Stanley have a much bigger advantage because they have their investment bankers sourcing deals. In Europe, if need be, we can be anywhere in under six or seven hours. Asia is just too far. And there are various components of the Asian markets that we'll never understand.”

HOME, SWEET HOME
Apollo's focus on markets that it can access and understand is perhaps best reflected in the firm's activities in its hometown of New York City. In addition to the Time Warner Center, which opened to the public in 2004, Apollo has been investing in the city since its inception. And in recent months, they've been doing so at a rapid-fire pace.

Earlier this year, Apollo acquired a Bronx housing project for $100 million and an apartment complex in Harlem for an undisclosed amount. In September 2005, the firm formed a partnership with Carver Federal Savings Bank and the Harlem Congregation for Community Improvement to acquire and develop real estate properties in upper Manhattan. And a few months earlier, Apollo announced it was the lead investor in a $500 million redevelopment project in the Flushing neighborhood of Queens as part of a joint venture with The Rockefeller Group and TDC Development and Construction. Over the next three years, the firm has publicly stated that it wants to invest $1 billion of equity in the greater New York City area.

“New York affords us the opportunity to explore,” Neibart says. “We're exploring in the Bronx, upper Manhattan, Queens, Brooklyn and Staten Island. The city just continues to grow and there is tremendous opportunity all throughout the five boroughs. New York is not just 57th Street and Park Avenue.”

And the US market is not just New York City. But outside of the Big Apple, Apollo's strategy is not as bold and far-flung as it is in the five boroughs. Neibart points out that the firm is focusing on major markets, such as Los Angeles, Washington DC and Dallas. “We will stay away from slow-growth areas,” he says.

These days, Apollo is also staying away from operating companies. In the mid- and late-1990s, the firm made several investments in real estate platforms such as residential real estate developer Atlantic Gulf Communities, hotel operator Wyndham International and golf course manager Meadowbrook Golf, among others. Though some of those corporate acquisitions turned out profitably, several of them did not—it's a lesson that the principals of Apollo have learned well.

“We will invest in those things that we have expertise in and that we can step in and run if there is a problem,” Neibart says. “And there have been operating companies we have invested in where we don't have that expertise. We haven't done it for the last seven years, but those were some of the lessons learned in the late 1990s.”

NO ‘I’ IN APOLLO
Learning—be it from past mistakes or from each other—has been a hallmark of Apollo's culture since the beginning. The six members of Apollo's investment committee, which includes Mack, Neibart, Benjamin, John Jacobsson, Stuart Koenig and William Mack (Bill's son), have worked together as a team for an average of almost ten years. And over that time, the firm has been able to create a dynamic, entrepreneurial atmosphere while also maintaining a cohesive, team-oriented approach—before Apollo can commit money to a deal, all six members of the investment committee must sign off on the transaction.

We have real estate skills and those real estate skills are adaptable to opportunity funds, value-added funds, mezzanine funds.”

“The great thing about Apollo is that we don't have a bureaucratic institutional business,” Neibart says. “We work as a team…and we all get compensated as a team. We don't differentiate from partners who do good deals and partners who do bad deals.”

It's an arrangement that has helped to create a collegial atmosphere at the firm. During our interview, Jacobsson pops in to Neibart's office for a few minutes to help find something on his computer—at one point, jokes are exchanged regarding their age difference (Jacobsson is in his 30s). The real estate business, particularly in New York City, tends to produce some outsized personalities. It's a stereotype that doesn't seem to conform to Apollo's two senior partners.

“In twelve years, [Bill and I] have never had a disagreement,” Neibart says. “We've never had an argument. At the end of the day…we always agree on the right course of action.”

Away from the office, Neibart's personal interests seem to be just as diverse as Apollo's. He is an avid traveler, political non-fiction reader and golfer (as the artwork in his office suggests). Neibart is also on the advisory board of both the Enterprise Foundation, a non-profit organization that provides capital to develop affordable housing, and the Real Estate Institute of New York University. Occasionally, Neibart even takes the opportunity to lecture at his alma mater, dispensing the wisdom he has gained over a career that has spanned more than three decades.

“I enjoy telling the students about the things that went wrong,” Neibart says. “They seem to enjoy that. Everyone these days thinks that real estate is a one-way business—only up. I've lived through two or three cycles. I know that the music does in fact stop.”

Neibart, however, doesn't seem interested in stopping himself. His work with the Enterprise Foundation, as well as some of the recent affordable housing projects that Apollo has invested in, reflects a greater desire on Neibart's part to give back to the community—two years ago, he was awarded the 2004 Urban Leadership Award from NYU's Real Estate Institute, something Neibart calls “one of the great highlights of my career.”

He may not want to speak too soon. After all, Neibart is only 54 years old. And listening to him talk, his career—at least the one outside the real estate industry—may just be getting started.

“I've always wanted to figure out how I could work in the political arena,” he says. “And it seems to me that one day there will be some role I can fill in economic development or something like that—that's what I strive for.”

Award-winning real estate professional, academic, golfer, family man, future politician.

“The greatest thing about Apollo,” Neibart says, “is that there is nothing we can't do if we want to do it.”

It seems the same could be said for Neibart himself.

KEY PERSONNELWilliam MackFounder and senior partnerLee NeibartSenior partnerJohn JacobssonManaging partnerRichard MackManaging partnerStuart KoenigPartner and chief financial officerWilliam BenjaminManaging Partner, EuropeFUNDSApollo European Real Estate Fund II (2005):$600mApollo-GMAC Real Estate Mezzanine Fund (2004):$108mApollo International Real Estate Fund (2003):$336mApollo Real Estate Investment Fund IV (2000):$1,090mApollo Real Estate Investment Fund III (1998):$1,050mApollo Real Estate Investment Fund II (1996):$570mApollo Real Estate Investment Fund (1993):$500m