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Apollo European NPL fund launches €1bn JV with Palmira

The New York-based credit investment behemoth’s European Principal Finance Fund III has raised more than $4bn. 

Apollo Global Management and Palmira Capital Partners have teamed up to form a joint venture to invest in logistics facilities across Europe, a vehicle that could be nearing the halfway mark in its capital deployment.

The partnership will invest €1 billion in core and future core assets in Germany, Benelux, central and eastern Europe, France, Spain and Portugal. So far it has already put €100 million to work across four transactions in Germany and has another €400 million of dealflow spread across five countries currently in the due diligence stage, according to the announcement.

Investment transactions will be sourced and negotiated by Palmira, while Apollo’s main role will be to provide the funding, a source familiar with the matter said. This person said it was hard to estimate how many deals may be done out of the JV, though the source noted that the average size of the JV transaction will be between 20,000 and 50,000 square meters. In addition, the deal size for the JV’s transactions could be up to €80 million, which may be several smaller deals rolled into one.

Frankfurt-based Palmira, a real estate asset manager specialising in logistics properties, set a €300 million target for its first in-house fund, Palmira Logistik Europa Fonds 1. The vehicle, announced in December 2015, ended up turning into a €150 million separate account with a German insurance company, the source said. Palmira crossed the €1 billion mark for its assets under management in March.

Palmira launched a similar partnership with Henderson Property in January 2013, a joint venture in which Palmira was responsible for finding investment opportunities and managing the assets. The Germany-focused vehicle, which was seeking to raise €250 million, targeted Bremen, Cologne, Frankfurt, Dusseldorf, Hamburg, Munich and Stuttgart.

New York-based Apollo has entered into the partnership with its European Principal Finance Fund III, according to the announcement. Fund III had raised more than $4 billion as of beginning of August, when firm founder and chief executive officer Leon Black disclosed the figure on its second-quarter earnings call. That number included $800 million raised in July alone.

The vehicle is focused on European non-performing loans and other non-core assets from the continent’s financial institutions. The fund will be “opportunistic across asset types and geographies”, according to an investment memo to a Pennsylvania public pension fund, but will focus on five key countries: the UK, Ireland, Spain, Germany and Italy.

To meet its investment requirements, a potential commitment must return between 8-16 percent, depending on the asset type and geography. With leverage the fund will aim to produce gross returns in around 20 percent and net returns of around 15 percent.

Palmira, which manages €1.2 billion and owns 60 properties, has offices in Frankfurt, Dusseldorf, Hamburg, Vienna, Luxembourg, Rotterdam, Warsaw and Madrid. Apollo manages $231.8 billion across private equity, credit and real estate and has 16 offices around the globe.