Apollo continues European mezzanine drive

The New York-headquartered credit specialist has bought £39m of junior debt in a London real estate transaction.

Apollo Global Management has bought a junior tranche of £200 million ($326.3 million; €255.9 million)of debt secured against one of London’s most luxurious apartment buildings, PDI’s sister title Real Estate Capital revealed.

The fund manager is close to concluding a purchase of £39m of debt held against Grosvenor House Apartments on Park Lane in the West End from Deutsche Bank. The deal has been agreed at an internal rate or return of around 7.5 percent.

Apollo has been competing aggressively in the steadily tightening mezzanine debt market. Last month it agreed to provide £100 million of junior debt secured against The Grosvenor House Apartments Savoy hotel, also in the West End. That deal was also alongside Deutsche Bank, which loaned the owners Kingdom Hotel Investments and Lloyds Banking Group £200m of senior debt.

The pair were also the lenders for the £600m refinancing of Chiswick Park in west London last year, which at the time was owned by Blackstone, when Deutsche Bank took a £400m senior tranche and Apollo a £200m junior tranche.

Deutsche Bank’s initial loan to the owners of Grosvenor House Apartments, Park Lane Properties – a joint venture between Kuwaiti investment firms Adeem, Investment Dar and Stehwaz Holding – was agreed last month. The whole £200m facility reflected a loan-to-value ratio of just under 75 percent with the senior tranche at a loan-to-value of 60 percent.

The 133-apartment property is situated behind the Grosvenor House Hotel and is operated by the Dubai-based, high end hotelier Jumeirah. It is run in the same way as a full service hotel but with the feel of a residential scheme designed for longer-term stays.

The new arrangement resulted in a loan being repaid to Lloyds Banking Group. The development of the hotel / apartments was challenged during the midst of the global financial crisis and a £112m murabaha, a sharia-compliant loan, issued by the bank in 2008 proved insufficient to cover its cost. The scheme stalled in January 2009 due to a £58m shortfall but additional equity from the owners and a restructure of the financing agreement with Lloyds saw work recommence in September 2010 and complete in 2012.