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A commercial real estate investment trust managed by Apollo has agreed to sell its $9bn loan portfolio to the private capital group’s insurance arm Athene, after the trust languished for years on public markets.
Shares in Apollo Commercial Real Estate Finance (ARI) have traded at an average of 77 per cent of book value over the past four years, the company said on Wednesday, a reflection of the discount the market placed on its portfolio.
Athene has agreed to buy ARI’s loan book at a price near the vehicle’s book value of the assets. The purchase price represents a premium of about 20 per cent to recent trading levels, which ARI said “validates” its book value.
ARI chief executive Stuart Rothstein said: “There seems to be much greater value placed on what we do from an origination perspective in the institutional market than in the public market right now.”
ARI’s portfolio includes several non-performing loans, including to a luxury residential building in Manhattan on 57th Street, known as Billionaires’ Row, and a shopping centre in Ohio. Athene said these loans would be included in the transaction.
Many real estate investment vehicles have struggled in recent years, after the Federal Reserve moved to tame inflation by sharply increasing interest rates in 2022.
Apollo’s vehicle invested mainly in the mortgages that real estate owners had secured to finance their properties, with half of the portfolio backed by loans to the residential and office sectors.
However, those asset-backed loans have been in high demand by large private investment groups looking for ways to boost the returns insurers earn on their investment portfolios.
Jade Rahmani, an analyst at KBW who covers the sector, said the deal underscored the “strong bid for yielding assets from alternative managers like Apollo, and an improving outlook for commercial real estate credit”.
ARI on Wednesday said it would keep the net equity interest in the real estate properties it held, worth $466mn as of the end of September, and that it would spend the rest of the year “evaluating a range of commercial real estate-related strategies designed to reposition [ARI]”.
ARI said it would “leverage Apollo’s broader investment platform and origination capabilities” in assessing its strategic options, as well as considering mergers and acquisitions. It also said it had the option to consider alternative proposals for the portfolio over the next 25 days, a step that may insulate directors given Apollo has ties on both sides of the deal.
If ARI had not announced a new strategy by the end of this year, the company said Apollo planned to recommend that ARI explore options including dissolution.
“This transaction to acquire ARI’s commercial real estate portfolio reflects Athene’s disciplined approach to sourcing high-quality assets with excess spread that align with our long-duration liabilities,” Athene said. On ARI, it added: “We are already invested in the capital structure across nearly half of the loans in the portfolio, giving us deep first-hand familiarity with the assets and their credit quality.”
Apollo has previously called out related-party transactions by insurers tied to its rivals.
Last year, Athene published a presentation highlighting the investments of life insurers owned by or affiliated with KKR, Blackstone and Brookfield, which it identified as having a larger share of related-party investments than Athene did. Other large private capital groups such as Brookfield have sold large portfolios of real estate assets to insurers they manage.
Athene pegged its own related-party holdings at 12 per cent of its total assets, a lower figure than some peers.
However, Athene used year-end 2024 statutory filings to calculate other groups’ positions, and relied on different data to calculate its own. If the same basis of calculation was used for Athene, its share of related-party assets rose by about half.
This article has been amended to correct inaccurate information provided by Athene about loans included in its deal with Apollo.