Joshua Harris, co-founder of Apollo Global Management, made it crystal clear what he felt about the firm’s real estate business, calling the platform “too small” during an earnings call last October.
He might also have called it too disparate. One senior executive within the business told PERE how the firm’s real estate operations in the US, Europe and Asia, as well as its real estate debt business, are run “totally separately” and currently have “no synergies.”
Thankfully for Apollo, it has found the man to settle both issues in the form of Joe Azelby, the football pro turned investment banker. Azelby is one of the most easily recognizable names in the industry, as a 30-year company veteran and the long-time chief executive of JPMorgan Asset Management’s global real assets group.
In addition to being a pioneer in the now-fashionable real assets space, the executive is considered a builder of businesses: in 1998, he assumed leadership of JPMorgan’s US real estate business, with approximately $20 million in revenue, and transformed it into a global real assets platform that generated more than $500 million in 2015. The GRA group currently comprises 500 investment professionals in 20 cities worldwide managing more than $95 billion in assets.
Under Apollo’s roof, a similar growth story is expected. An infrastructure business has been mooted and, in real estate, predictions of core strategies, akin to those offered at JPMorgan, also have been made. If Apollo is truly going to take the AUM fight to its New York private equity rivals in terms of other asset classes, in Azelby, it has picked a man for the challenge.
Of course, Apollo has some way to go, both in absolute and relative terms. Blackstone currently manages $368.2 billion in assets, $102 billion, or 27.7 percent of which, is real estate. Carlyle, meanwhile, manages $162 billion, of which $36 billion, or 22 percent is real estate. At $197 billion, Apollo manages less assets than Blackstone and more than Carlyle, but far less real estate than both: just $12 billion, or 6 percent of total AUM. With institutional appetite for real estate greater than ever – even if allocations are being fulfilled at a slower pace due to the current high point in the investment cycle – that is a significant lag. The same lag is evident in terms of capital support for its real estate strategies too.
The latest PERE 50 ranking, published last month, places Blackstone first with $49.9 billion raised for opportunistic real estate investment funds over the last five years, and, though way behind, Carlyle is 13th with $4.99 billion. Apollo never made the cut.
Bringing Apollo’s four major real estate businesses – the US platform run by Coburn Packard, the Europe platform run by Roger Orf, the Asia platform led by Philip Mintz and the real estate credit business led by Scott Weiner – closer together will likely be one part of Azelby’s brief and one way to help claw back some of that distance.
That is the expectation among the real estate business’s senior lieutenants, although, in keeping with the issue of a lack of unity, we understand no brief has been shared yet. Within a week of Azelby joining, none of them had been briefed about the firm’s strategy as a result.
“Is this guy needed?” PERE asked our source. “Yes, no question,” came the response. “They made a very good decision.” As he commented: “There never was a global real estate business, he’ll be putting it together and growing it. He’s a manager, that’s what he does.”
Apollo acquired a global business in the form of Citi Property Investors in 2010, a move that gave it an instant AUM boost, from virtually nothing in real estate to $8 billion-plus. But with the funds inherited in the takeover being liquidated, and with key personnel leaving since, relative to its peers, little capital was raised since and that was reflected in its deployment and assets growth rates.
Nevertheless, even with Azelby’s predecessor Joe Azrack, who masterminded the purchase of CPI, effectively leaving the top seat empty since 2012, the firm’s real estate operations had been building momentum lately. For example, stateside, it is now on its second opportunity fund, with $651 million raised so far for US Real Estate Fund II. In Asia, after a couple of false fundraising starts, the firm is beyond halfway raising its first Asia Real Estate Fund, having pulled in $300 million towards a $600 million target.
Azelby’s arrival is expected to bolster this momentum with support for these existing efforts and the introduction of new strategies, rather than alter its course.
Additional reporting by Evelyn Lee