Apollo Commercial Real Estate Finance (ARI), an Apollo-backed REIT planning to invest in commercial real estate and CMBS, is planning to go public this week. The company joins a host of other financing companies planning to target the stressed commercial real estate market. According to the WSJ:
During the credit boom earlier this decade, commercial real-estate debt ballooned and a lot of this has to be refinanced in coming years. But the financial crisis hit traditional commercial real-estate investors, like banks and insurers, so hard that there's not a lot of money around for this type of lending anymore.
New companies like Crexus and Foursquare are hoping to make money by filling this capital void - at a price.
Business Overview (from prospectus)
Apollo Commercial Real Estate Finance, Inc. is a newly organized commercial real estate finance company that has been formed primarily to originate, invest in, acquire and manage senior performing commercial real estate mortgage loans, commercial mortgage-backed securities, or CMBS, commercial real estate corporate debt and loans and other commercial real estate-related debt investments in the U.S. We refer to these asset classes as our target assets.
We will be externally managed and advised by ACREFI Management, LLC, or our Manager, a recently formed indirect subsidiary of Apollo Global Management, LLC. Apollo is a leading global alternative asset manager in private equity, distressed debt and mezzanine investing since 1990. Apollo had assets under management of $38.3 billion as of June 30, 2009. Our Manager will be led by an experienced team of senior real estate professionals, including Joseph F. Azrack, who will also serve as our Chief Executive Officer, Scott Weiner, who will serve as our Manager’s Chief Investment Officer, and Stuart A. Rothstein, who will serve as our Chief Financial Officer. Messrs. Azrack, Weiner and Rothstein will be supported by a team of senior executives who have significant experience in commercial property ownership and finance. Our Manager will also draw upon the extensive transactional, financial, managerial and investment skills of Apollo’s private equity, credit-oriented capital markets and real estate investment professionals. We believe our relationship with Apollo will provide us with significant advantages in sourcing, evaluating, underwriting and managing investments in our target assets.
Offering: 20 million shares at $20 per share. According to the prospectus, the company "intends to contribute the net proceeds of this offering and the concurrent private placement to our subsidiaries, which in turn will use such net proceeds to acquire our target assets in accordance with our objectives and strategies".
As of the date of this prospectus, we have not commenced any operations because we are in our organizational stage. We will not commence any significant operations until we have completed this offering and the concurrent private placement...
We expect that the results of our operations will be affected by a number of factors and will primarily depend on, among other things, the level of the interest income from our target assets, the market value of our assets and the supply of, and demand for, senior performing commercial mortgage loans, CMBS, commercial real estate corporate debt and loans and other real estate-related debt investments in which we invest, and the financing and other costs associated with our business. Our interest income and our borrowing costs are expected to vary as a result of changes in interest rates and the availability of government sponsored financing, each of which could impact the net interest we receive on our commercial mortgage loans and on our CMBS assets. Our operating results may also be impacted by conditions in the financial markets, credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers whose commercial mortgage loans are held directly by us or are included in our CMBS.
Our net income will depend, in part, on our ability to acquire assets at favorable spreads over our borrowing costs. In acquiring our target assets, we will compete with other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities. We also believe, however, the market opportunity will be greater than the number of participants who will be in a position to take advantage of it. See “Management’s discussion and analysis of financial condition and results of operations—Market conditions.” In addition, there are numerous REITs with similar asset acquisition objectives, including a number that have been recently formed, and others may be organized in the future. These other REITs will increase competition for the available supply of mortgage assets suitable for purchase and origination. Our anticipated competitors may be significantly larger than we are, have access to greater capital and other resources and may have other advantages over us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we can. Current market conditions may attract more competitors, which may increase the competition for sources of financing. An increase in the competition for sources of funding could adversely affect the availability and cost of financing, and thereby adversely affect the market price of our common stock.