US real estate offering Apollo the best of both worlds

Apollo deploys $127.9 million in first mortgage and mezz loans

Apollo Commercial Real Estate Finance (ARI) has deployed $127.9 million in loans as the firm capitalizes on opportunities to both increase first mortgage financings while also teaming up with senior lenders to target its “bread and butter” mezzanine loans, PDI sister title Real Estate Capital reported.

“If you take a step back and look at real estate market coming out of the downturn in 2009 and 2010, equity fund flows went to the most secure assets in four or five markets across country,” company CEO Stuart Rothstein said at the Keefe, Bruyette & Woods Mortgage Finance Conference in Manhattan yesterday (2 June).

“Today there is more capital flowing to value-add and opportunistic opportunities… so there is more opportunity for us to originate with senior lenders to get attractive returns between senior loans and equity capital.”

ARI this month closed a $45 million floating rate mezzanine loan secured by a portfolio of 36 office, flex and industrial properties totaling 3.5 million square foot located in Long Island, New York.

The loan, part of a $200 million financing that includes a $155 million first mortgage loan, has a two-year initial term, with three, one-year extension options, an appraised LTV of 79 percent and has been underwritten to generate an internal rate of return (IRR) of approximately 12 percent.

In addition, ARI in April closed a two-year, floating rate $37.5 million financing (three one-year extension option), consisting of a $22 million mezzanine loan and a $15.5 million preferred equity investment for two multifamily properties, totaling 621 units of collateral located in Southern Florida. The subordinate financing has an appraised LTV of 89 percent and was underwritten to generate an IRR of approximately 14 percent.

The company “has a very robust investment pipeline and continues to identify interesting” opportunities, with a clear focus on floating rate debt. But it will include an ongoing, increased focus on first mortgages, Rothstein said.

The firm acquired this month a $45.4 million pari passu note, part of a $227 million first mortgage loan secured by a portfolio of 21 limited service and extended stay hotels totaling 2,690 rooms throughout 13 US states.

The floating rate loan has a two-year term with a one-year extension option. The first mortgage loan has an appraised LTV of 63 percent and has been underwritten to generate an IRR of approximately 8 percent on an unlevered basis.

The infusion of foreign capital that has flowed into major US cities could soon be rivaled by pension funds that have loads of capital to deploy, having pulled back in 2009 and 2010 and increased capital reserves as the stock market improves, creating additional opportunity for first mortgages.

“From an equity perspective we are still in the early stages of the cycle in terms of fund flows,” Rothstein said. “You are now seeing an influx of pension fund capital.”