Apollo Real Estate Advisors is setting up a debt division in Europe in hopes of buying tranches of debt from distressed sellers and also providing property finance to borrowers.
The US firm, whose European business is led by William Benjamin, has reportedly acquired a debt business and is in the process of raising up to $1 billion (€640 million) in equity for a fund.
Benjamin told the Financial Times: “The business plan is similar to the US. There is a big need for mezzanine finance and (there are) very attractive opportunities to buy existing debt.” Before the vehicle is raised, the firm has access to $200 million of equity from its US debt fund.
According to the report, Apollo has acquired Stoneleigh Capital to run the operation in Europe. Stoneleigh is a London-based firm specialising in providing debt capital to real estate investors. It views the UK and Germany as offering the most obvious opportunities, though its founder David Ferguson is also looking at Benelux countries.
Benjamin points out that debt sitting on a bank’s balance sheet can trade at large discounts, even for good quality buildings. The firm estimates there is a €30 billion to €40 billion “overhang” of credit that banks would have been able to securitize prior to the credit crunch.
Private equity real estate firms have become increasingly focussed on debt vehicles since September. This is not only because the returns on offer are attractive but because they are struggling to find direct real estate opportunities or they are simply waiting on the sidelines until attractive opportunities emerge. In Europe, JER Partners – like Apollo, a US firm with a strong track record and history in debt investments – is also known to be considering a debt vehicle.
In the US, firms specialising in debt have been increasing their fund size such as New York-based Trilyn, Investcorp and Bank of Scotland, which raised $110 million for TriLyn-Investcorp Mezzanine Parters I last year.
Apollo’s debt business in the US launched a follow-up fund in 2006 to Apollo-GMAC Real Estate Mezzanine as it geared up for opportunities.