2010AWARDS & AnnuAL REVIEW - PERE

Investors, among others. After being named among the
final three at the end of 2009, Apollo Global – led by former
CPI president Joseph Azrack – clinched the deal in
early March when it secured preferred bidder status.
The winning bid came as a result of garnering enough
support from the LPs in CPI’s three funds, as well as
from Citigroup and CPI executives, the former of which
typically invested up to $200 million per fund.
Apollo is believed to have paid a nominal fee upfront
for the platform, which Citigroup placed on the market
in August 2009, just four years after starting the real
estate investment management venture. Citigroup also
was expected to benefit from any future positive performances,
with the two firms agreeing a pre-determined
earn-out structure, people familiar with the matter said.
The takeover reunited Azrack with his former CPI
comrade Roger Orf, who was formally named head of
Apollo Global Real Estate Europe once the deal was
closed. He works alongside Apollo’s head of North
America, Ray Mikulich, and Grant Kelley, head of Apollo’s
real estate operations in Asia Pacific.
3Capping the year off
investors waiting for the us real
estate market to hit the 10% cap
rates of the early 1990s could be
disappointed after predictions that cap
rates would peak at 8% in 2011
It may have been billed the Great Recession, but the crisis
enveloping US commercial real estate was not expected
to match that of the savings and loan debacle of the early
1990s – with cap rates expected to peak at just 8 percent
by 2011.
A research report by CB Richard Ellis Econometric
Advisors early last year forecast that investors waiting
too long for the bottom could actually end up “disappointed”,
with appraised cap rates not expected to top
the 10 percent levels seen in 1994 and 1995 by some US
property sectors.
Indeed, CBRE said at the time the opportunity to buy
could come “sooner than [investors] expect and at less attractive
pricing than they would like”. It was something
keenly witnessed during 2010 in a variety of US real estate
markets as a lack of property transactions and a wave of
equity targeting the asset class combined to push cap rates
down to levels not seen since 2005 and 2006, particularly
for ultra-core properties in prime markets. In Manhattan,
core office properties trading at sub-5 percent caps
frequently hit the headlines, leaving many private real estate
investors scratching their heads in wonder.
“Well-leased buildings purchased at low cap rates may
actually be more risky than investing in under-leased
or capital-stressed investments where the opportunity
exists to drive cash flow and add value,” a white paper
from advisory firm Hodes Weill & Associates declared
in October.
Best of the rest on
PEREnews.com [Americas]
in 2010
4
PLACEMEnT FEE DISCLOSuRES
In the wake of the US placement agent scandal, the California
Public Employees’ Retirement System released more than 5,000
pages of detailed documents in January highlighting what its GPs
paid placement agents in fees.
5
DE SHAW RESTRuCTuRES
DE Shaw launched a workout and restructuring group in
January in a bid to target lenders and borrowers troubled with
restructuring issues. Called DE Shaw Real Estate Advisers, the team
is co-led by the head of the private equity firm’s real estate group,
George Rizk, and senior vice president Matthew Coleman.
6
WARFARE WORKOuTS
Real estate investors were told by Colony Capital founder Tom
Barrack in July that they would have to work even harder just to
achieve single- and low double-digit returns. With real estate in more
developed countries expected to be “ordinary not extraordinary,”
the best opportunities were in debt workouts and recapitalisations.
Such deals were “hand-to-hand warfare … at the asset level,” he said.
7
GuGGEnHEIM SPInOuT nABS LEHMAn VETS
G2 Investment Partners, a spinout from Guggenheim Partners,
created a real estate platform in June targeting lending, debt and
equity investments. The firm is led by a raft of former Lehman
Brothers executives, including Kenneth Cohen, Larry Kravetz and
Charles Manna, among others.
8
REAL ESTATE SHAKEOuT
The industry was warned that it was headed for a “shakeout,”
with many firms unable to raise any capital for new funds, according
to Stephen Schwarzman, chief executive officer of The Blackstone
Group. “There will be a huge shakeout in [real estate],” he said.
“People have been devastated in that area, but it remains a big asset
class.”
9
DISTRESSInG OPPORTunITIES
Distressed real estate opportunities in the US attracted the
most attention from alternatives investors in 2010. A survey of
100 private equity, hedge fund, proprietary trading desks and
institutional investors voted US real estate the best distressed
opportunity in 2010, with 41 percent of respondents backing the
claim, compared to just 19 percent in 2009.
10
ALLOCATORS VS OPERATORS
The traditional private equity real estate business model of
allocating capital to operators for deals – thereby charging double
promotes – doesn’t work anymore, according to Castle Hill founder
and former Perry Capital executive Robert Stern. “I think we have to
be more open to sharing the promote with our operating partners
and vice-versa,” he said in June.
2010 AwArds & AnnuAl review | PERE 35