The Pennsylvania Public School Employees Retirement System has chosen to invest up to $150m (€116m) into a new real estate finance company being created by Apollo Real Estate Advisors.
The name of the new company is Apollo Real Estate Finance Corporation. The commitment made by the pension fund cannot exceed 25% of the total committed capital to the company.
Pennsylvania Public School looks at this investment as a unique one in the real estate industry. There aren't too many new real estate finance companies being created in the marketplace.
Apollo is able to do so because it has more than 40 investment professionals with significant real estate investment and capital market expertise. This has given it a large network of industry relationships and so it can learn about deals before anyone else is aware of them.
Pennsylvania Public School envisages high returns for its investment. It projects this to be a gross IRR in the range of 16-18%. The majority of the return will be generated through current income on the investment portfolio.
The investment strategy will be in writing loans for assets in transition. This means properties that have leasing issues or that require redevelopment, re-tenanting or repositioning.
Apollo is expected to consider deals in the major metropolitan markets around the country. This will include the four main property types of office, industrial, retail and apartments.
Apollo will be investing through a variety of real estate financing vehicles including whole loans, mezzanine debt, preferred equity, B-notes, strategic joint ventures and corporate real estate. The deals could be on individual assets or portfolio transactions.
Through its previous 11 closed-ended investment vehicles, Apollo has invested in excess of $5bn in real estate and produced a projected aggregate gross realised and unrealised IRR of 18.8%.