Apollo shops for real estate AUM after deal fizzles

  • Tranaction to create AR Global gets scrapped
  • Firm would have double real estate AUM to $27 bln
  • Firms mum on why deal went sour

Apollo Global Management’s ambition to beef up its real estate assets under management from the current level of roughly $15 billion remains alive despite scrapping a plan to launch AR Global Investments, according to people familiar with the firm.

Apollo said November 9 it would no longer go through with its announced deal to boost its real estate AUM to $27 billion by buying a majority of AR Global Investments, a new company proposed at the time in a deal with AR Capital.

Apollo and AR Capital mutually agreed to terminate the deal, the firms said. As part of the termination, AR Capital purchased $25 million of preferred stock of RCS Capital Corp held by Apollo for $25.6 million. RCS Capital was created by partners from AR Capital in 2008.

Apollo will now buy two pieces of RCS Capital’s wholesale distribution business for a price of $6 million in cash. The latest deal includes RCS Capital’s Realty Capital Securities and Strategic Capital units. RCS Capital’s transfer agent and transaction management units will not be included in the amended transaction, the companies said. The newer deal is expected to close in the first quarter of 2016.

As part of the deal laid out on August 6, Apollo would have paid $378 million to create AR Global, with AR Capital co-founder Nicholas Schorsch acting as senior managing director and board member. At the time, Apollo also planned to pay $15 million in cash following the closing and purchase $25 million in preferred stock for the wholesale distribution business of RCS Capital Corp.

Schorsch has been embroiled in a lawsuit brought by a former executive around allegations that he improperly ordered accounting changesReuters reported in October 2014 that the FBI and U.S. Attorney had opened a criminal probe into the allegations. Last year, Schorsch resigned from the board of American Realty Capital Properties Inc and other boards of non-traded real estate investment trusts. Apollo embarked on the deal with Schorsch after these allegations had already surfaced publicly.

Spokespeople for Apollo and RCS declined to comment beyond prepared statements.

Apollo didn’t give any hints about its move to scrap the formation of AR Global Investments in its October 28 conference call with analysts, but it did lay out some if its ambitions in the real estate space.

“We would like to be a lot bigger than we are,” Josh Harris, Apollo senior managing director, said at the time. “I would say clearly, when you look at the size of our private equity business relative to certainly Blackstone Group, but a number of other players, there’s a lot of room to grow. But it’s like anything else: We started from a small base. We’re growing it, but we are growing off a small base.”

Including Apollo’s real estate credit business, assets total about $17 billion, which “is not small,” he said.

Action Item:  Read Apollo’s statement about terminating the AR Global deal: http://bit.ly/1HDlYwu

Photo: Leon Black, CEO of Apollo Global Management, speaks at the 2014 Milken Institute Global Conference in Beverly Hills, California April 29, 2014. REUTERS/Kevork Djansezian