Apollo Commercial Real Estate Finance (ARI) has deployed $127.9m in loans as the firm capitalizes on opportunities to both increase first mortgage financings while also teaming up with senior lenders to target its “bread and butter” mezzanine loans.
“If you take a step back and look at real estate market coming out of the downturn in 2009 and 2010, equity fund flows went to the most secure assets in four or five markets across country,” company CEO Stuart Rothstein said today at the Keefe, Bruyette & Woods Mortgage Finance Conference in Midtown Manhattan this morning.
“Today there is more capital flowing to value-add and opportunistic opportunities… so there is more opportunity for us to originate with senior lenders to get attractive returns between senior loans and equity capital.”
ARI this month closed a $45m floating rate mezzanine loan secured by a portfolio of 36 office, flex and industrial properties totaling 3.5m sq ft located in Long Island, New York.
The loan, part of a $200m financing that includes a $155m first mortgage loan, has a two-year initial term, with three, one-year extension options, an appraised LTV of 79% and has been underwritten to generate an internal rate of return (IRR) of approximately 12%.
In addition, ARI in April closed a two-year, floating rate $37.5m financing (three one-year extension option), consisting of a $22m mezzanine loan and a $15.5m preferred equity investment for two multifamily properties, totaling 621 units of collateral located in Southern Florida. The subordinate financing has an appraised LTV of 89% and was underwritten to generate an IRR of approximately 14%.
The company “has a very robust investment pipeline and continues to identify interesting” opportunities, with a clear focus on floating rate debt. But it will include an ongoing, increased focus on first mortgages, Rothstein said.
The firm acquired this month a $45.4m pari passu note, part of a $227m first mortgage loan secured by a portfolio of 21 limited service and extended stay hotels totaling 2,690 rooms throughout 13 US states.
The floating rate loan has a two-year term with a one-year extension option. The first mortgage loan has an appraised LTV of 63% and has been underwritten to generate an IRR of approximately 8% on an unlevered basis.
The infusion of foreign capital that has flowed into major US cities could soon be rivaled by pension funds that have loads of capital to deploy, having pulled back in 2009 and 2010 and increased capital reserves as the stock market improves, creating additional opportunity for first mortgages.
“From an equity perspective we are still in the early stages of the cycle in terms of fund flows,” Rothstein said. “You are now seeing an influx of pension fund capital.”