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Inside Apollo’s €435m financing of Tristan’s largest acquisition to date

Ali Otmar of Tristan Capital Partners and Ben Eppley of Apollo Global Management discuss a transaction, which Otmar says required the 'extreme end of flexibility'.

The €435 million senior loan provided by New York-headquartered investment giant Apollo Global Management to fund London-based manager Tristan Capital Partners’ biggest investment transaction to date demonstrates that certain lenders are willing to underwrite big-ticket loans for relationship sponsors if a deal ticks the right boxes.

Tristan, through its EPISO 5 opportunistic fund, is acquiring a German mixed-use property portfolio from the Tel Aviv-listed company Summit Real Estate Holdings for around €1 billion. The purchase, which is due to complete on 30 June, involves the acquisition of 57 assets, including office, warehouse/industrial and retail space owned directly by Summit, and 12 properties from the GxP German Properties platform, of which Summit owns a 77.5 percent share.

Apollo’s five-year, floating rate loan will initially finance 52 of the properties from the 57-strong portfolio, which are located across Germany’s largest seven cities. However, there is scope to increase the size of the financing.

Ali Otmar, a senior partner and head of investments at Tristan, said a transaction of this size and complexity required a lender willing to take a highly flexible approach.

“Aside from the €435 million loan provided by Apollo, there are nine lenders that have lent against different assets from the portfolio, some of which will be refinanced with Apollo’s facility,” he told Real Estate Capital. “Depending on how we get along with the other banks that we are asking to consent, it might be a larger loan of up to €70 million more.

“When Apollo committed, it knew the minimum number of properties and the maximum, but some flexibility was needed while we assessed the situation. This was a structured transaction but getting a lender to agree to that structure in the required timeframe meant we had to work with someone at the most extreme end of flexibility.”

Otmar said there was significant lender demand to finance the portfolio, including from debt funds, investment banks and German mortgage banks. “When due diligence began at the beginning of February 2021, we had five term sheets from different financing sources for the entire loan, and three or four more offers for parts of the portfolio,” Otmar said. “We had more options than we had expected given the transaction’s size and its complexities.”

Although mortgage banks quoted lower lending margins, Tristan’s choice of lender was made due in part to Apollo’s ability to deliver the loan within a tight timeframe. “For most traditional banks, it would have been very difficult to provide financing in the short time period the transaction required,” said Otmar. “For us, it was important to have a signed loan agreement in conjunction with entering into the transaction and putting down our deposit, to have the financing fully in place at the time we committed ourselves.”

Having a single lender underwrite the whole deal was also a benefit, Otmar added. “If this was a €200 million transaction, our fund has an internal facility that allows us to bridge the third-party financing, but the size of this transaction meant that we needed a debt provider that could deliver physical cash on 30 June,” he said. “Most German banks were just able to provide such financing by teaming up with other banks, which would have put further risk on delivery of funding.”

According to Ben Eppley, head of European commercial real estate debt for Apollo, the ability to underwrite a loan of this scale is due to the long-dated capital profile of its funding sources. “We were in a unique position, where we were able to provide this commitment to Tristan on balance sheet through our permanent capital and affiliate vehicles, which provided the sponsor a lot of certainty and security in this specific situation,” he told Real Estate Capital.  

Apollo provided the loan on behalf of its public mortgage REIT and insurance platform. The company has expanded its insurance asset management business in recent years, enabling it to provide large-scale senior loans in the real estate market.

“The fact we have large permanent capital vehicles, including insurance companies and a listed mortgage REIT, and that we are a balance sheet lender, which means we do not need to rely on securitisation or syndication, combined with the scale and nature of our vehicles, is a competitive advantage that enables us to fund large deals while providing confidence to the counterparties involved that we will be there not just for the execution and closing of the deal, but also through the life of the loan,” Eppley explained.

Covid-19 effect

Tristan’s largest investment deal to date was underway before the covid-19 pandemic, Otmar explained. Conversations with the vendor for the off-market transaction started in January 2020. However, the pandemic led Tristan to reset the acquisition price.

Otmar said: “By the end of January 2021, we had exclusivity with the vendor. We had to re-underwrite the transaction during the pandemic to reflect the market reality at the time, which had an impact on the price.”

According to Otmar, Tristan’s experience as an investor across sectors in Germany enabled it to secure the acquisition. “We are one of the larger investors in Germany, where we have invested across many different cities over the last 20 years. We have a good track record in terms of deliverability.”

From Eppley’s perspective, the pandemic has presented a wider range of debt opportunities in Europe to Apollo as a lender. “As fewer lenders feel comfortable with the types of deal we are eager to fund, we are presented with a broader range of lending opportunities in European markets.

“The combination of the initial market dislocation brought about by the pandemic, coupled with our long-term capital funding sources, has been really powerful for us to offer big ticket loans to our sponsors.”