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Apollo targets US ‘sub-markets’ with $525m fund

The New York-based real estate investment firm has held a first close on its value-add domestic emerging fund, which will invest in underserved markets in major US cities.

Apollo Real Estate Advisors is raising $525 million (€334 million) for a US fund which will target “sub-markets” in metropolitan cities across the US.

The Apollo Domestic Emerging Markets (ADEM) Fund will be headed by James Simmons, former chief investment officer and interim president of the Upper Manhattan Empowerment Zone Development Corporation, which led much of the revitalization of Harlem. Simmons joined Apollo in 2003 to develop the firm’s domestic emerging markets platform. He is now a partner and member of the investment committee.

The fund, which has already held a first close on $420 million, will target value-add projects with gross returns of about 18 percent, according to documents from New Jersey State Investment Council. The firm expects to exit its investments within 10 years, and leverage up to 65 percent. A spokeswoman for Apollo declined to comment.

ADEM’s strategy will be to target properties in cities such as New York, New Jersey, Los Angeles, San Francisco, Washington, Philadelphia, Boston and Detroit, where cash flow is constrained owing to government regulation, capital neglect and long-term below-market leases. According to New Jersey, Apollo will rehabilitate properties to “bring the assets to market standards.”

Apollo, co-founded by William Mack and Leon Black’s Apollo Management in 1993, has raised $11 billion since its inception – $5.4 billion in the past five years, according to proprietary data from PERE. Apollo Management no longer manages its real estate namesake or has any managerial control, according to SEC filings submitted earlier this year by Black’s firm as part of its push towards going public. The filings stated Apollo Management’s managing partners had “minority interests” in the real estate business.

Apollo Real Estate’s opportunity and debt funds have realized a 22.4 percent gross IRR, according to the New Jersey documents, with its value-add funds realizing a 21.3 percent gross IRR. Institutional joint ventures have realized a 41.2 percent gross IRR.