PSERS OPPORTUNISTIC REAL ESTATE PROGRAM ...

Major Real Estate Asset Classes. Apollo currently invests primarily in the major
property types including retail, office and warehouse/light industrial and, to a lesser extent,
residential and hospitality. Although, some of the prior funds made selective investments
in real estate related operating companies, the International Fund and the European Fund
II have de-emphasized such investments.
“Off-Market” Transactions. Apollo concentrates on “off-market” transactions and rarely
participates in widely marketed auctions, in which competition is intense and the potential
for large due diligence costs squandered on unsuccessful transactions is high. Apollo
typically sources transactions in conjunction with its local operating partners from
motivated sellers who wish to conduct one-on-one negotiations, or who are contacting a
small number of select, qualified buyers able to conclude transactions quickly.
Proven Joint Venture Partners with Local Expertise. Generally, Apollo undertakes its
investments with experienced joint venture partners. These local operators are extremely
important in originating off-market transactions and performing day-to-day asset
management responsibilities. These partners typically invest between 5% and 50% of the
total equity requirement for each investment and provide asset management services
pursuant to a pre-agreed business plan. Generally, partnership meetings are conducted
every month, and Apollo has significant input to the operation of the assets. Ultimately,
Apollo maintains approval rights over all major decisions and has the power to remove
joint venture partners in the event of non-performance. A description of some of Apollo’s
selected local partners and an overview of the nature of their co-investing relationship with
Apollo can be found later in this section.
Major Markets. Apollo intends to continue to focus on the major European markets of the
UK, France, Germany and Spain and the principal cities of smaller markets such as
Warsaw, Prague, Bucharest and Budapest. Apollo concentrates on investing in the major
European markets but has increasingly begun to identify attractive opportunities in
Eastern Europe which are often focused on development or regeneration opportunities.
Over 41% of Apollo’s European investments (measured by equity commitments) have
been in the UK, Europe’s largest real estate market in terms of capitalization. The
remaining investments have been predominantly in the major European economies,
including Germany, France and Spain. Given the weight of money acquiring income
producing assets in the UK, the European Fund II has reduced its UK exposure in favor of
other markets such as Germany and Switzerland. In addition, Apollo intends to target
selected investments in Central and Eastern European countries recently admitted into
the EU (including Poland, Bulgaria, Romania, the Czech Republic and Hungary). Apollo
concentrates on these markets, in part, because they provide the most liquidity upon exit.
Apollo also anticipates undertaking selected investments on a limited basis in non-EU
countries such as Russia, Turkey, and the Ukraine.
Medium-Sized Investments. Apollo generally makes medium-sized real estate
investments. The average equity invested in each of the 93 European investments in the
prior funds is approximately $15 million. No single investment in the European Fund II, to
date, has represented more than 6% of the total fund size. By targeting mid-sized equity
investments, Apollo is able to participate in a broad section of the investment market.
Risk Aversion. In addition to diversification, Apollo further seeks to reduce risk in its
portfolio by focusing primarily on income-producing assets where value can be created by
filling vacancies, extending lease terms, increasing rents and selectively adding value
through capital improvements and expansions. Historically, Apollo’s European
investments have been allocated 64% to income producing assets and 36% to
PSERS Private Investments
Page 4 of 8