Apollo gets hold of Holdfast

According to the Apollo materials, Kelley will lead the new unit, headquartered out of Hong Kong, reporting to Joe Azrack, Managing Director and Head of Apollo Global Real Estate Management, and managing seven other investment professionals formerly with Holdfast.

“We are very pleased that Grant and his team will be joining us, to strengthen our presence in the Asia Pacific markets and bolster our investment capabilities in the region on behalf of our clients,” said Azrack. “Grant will add a wealth of expertise and proven abilities to our organization.”

New business, same approach

The new Apollo unit will initially target Australia, Japan and South Korea as particularly rich in opportunities, but is able to invest across the entire region. China and India are cited as probable destinations for later expansion. Apollo’s materials indicate that the business will look at various distress-driven real estate themes, particularly NPLs and the recapitalization of distressed REITS and real estate operating companies. Furthermore, Kelley’s team will look at distressed individual real estate-linked assets with an enterprise value between $100-500 million.

Also, Apollo will reportedly look to launch a dedicated Asia Pacific real estate fund, targeting to raise $500 million-$1 billion, although the new unit will be able to access Apollo’s global capital pool to invest in regional opportunities from the start. Apollo is not understood to be incorporating any raised capital from Holdfast, which had been constrained from much active fundraising until very recently by various legal restrictions. As at September 2009, Apollo, founded in 1990 by former Drexel Burnham Lambert banker Leon Black, had some $51 billion of assets under management.

Kelley’s pedigree in Asian real estate investment is typified by his tenure as CEO of Colony Capital Asia from 2004 until late 2008, where he helmed some major real estate private equity deals, including the 2005 buyout of Singapore’s Raffles Hotels and Resorts. After leaving Colony he founded Holdfast Capital as CEO, looking to launch an independent team and fund to invest in real estate private equity across the region. Judging by the public materials on Holdfast, the entire Hong Kong staff, including MD Pietro Cinquegrana and CFO Neville Chan, will be transferring to Apollo, indicating that the new owner has taken on board the entire Holdfast operation as a going concern.

Apollo Global Real Estate, meanwhile, is a separate entity from the long-established Apollo Real Estate Advisors, which now is officially separated from Apollo Management. Azrack joined Apollo to head up the new division in August 2008 from Citi Property Investors, where he formerly was CEO. At the time, Azrack already indicated that he was looking to expand the business further, and was positioning it midway between Apollo’s buyout and distressed capabilities.

Strategy and prospects

The strategy of Kelley’s team at Apollo will be similar to the new parent’s approach in other regions, sources indicated, with frequent use of debt positions to gain access to a highly-leveraged target. Holdfast’s original thesis apparently centered on the wealth of discounted and distressed opportunities available in Asia Pacific’s more developed economies post the global crisis, and the investment approach detailed in Apollo’s materials follows the Holdfast approach pretty exactly.

Holdfast does appear to have been screening investment opportunities for some time, on a more or less formal basis, and quite a number of these are now believed to be well-diligenced and immediately available for the new Apollo unit to invest into. Sources indicated to AVCJ that the new entity will have a substantial pipeline.

Under the new dispensation, Kelley and his team will gain comfort and support from a very large and high-quality parent, plus access to resources and abundant capital from within the Apollo network, and a superb platform for future fundraising. Apollo, meanwhile, gets an entire investment business ready to go, with well-qualified opportunities ready for capital commitments. Furthermore, it gains immediate access and stature in a region where it has hitherto lagged behind industry peers like Colony Capital, Oaktree Capital, and the Blackstone Group. The new arrangement remains subject to the usual clearances and approvals, but should be ready to go soon. The deal really appears to be a win: win from both sides – and brings one of the remaining standout Wall Street private equity names into Asia Pacific in fine style.

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• Topics
• Real estate
• Real estate
• People
• Holdfast Capital
• Grant Kelley