Apollo to buy Lend Lease's fund division

Real Estate Alert, March 17, 2004

Apollo Real Estate has agreed to buy Lend Lease Real Estate Investments' fund-management division, one of the last remaining pieces of Lend Lease's former real estate empire.

The division manages four value-added vehicles: Lend Lease Value Enhancement Funds II through V. Apollo intends to retain the Atlanta-based managers of the vehicles, which have more than $1 billion of total assets. It's not clear whether Lend Lease has an equity interest in the funds or, if so, whether Apollo would acquire it as part of the deal. The purchase price could not be learned.

Two-thirds of the investors in the Lend Lease funds must approve the sale to New York-based Apollo, which itself operates five opportunity funds, according to a letter that Lend Lease sent to investors. There doesn't appear to be a deadline for the vote, but the buzz is that Lend Lease and Apollo would like to move forward within a month.

Lend Lease Real Estate Investments is the U.S. real estate operation of Sydney-based Lend Lease Corp. The Atlanta unit, while profitable, was driving down the overall performance of the parent, which has decided to liquidate it.

Most of the U.S. operation has already been sold. Morgan Stanley acquired Lend Lease's giant advisory business--the core of the U.S. real estate operation. That deal: for an undisclosed price, closed in October. Lend Lease's brokerage unit, Holliday Fenoglio Fowler, was bought out by its management. A $160 million mezzanine fund, LLFC Enhanced Yield Fund, was taken over in December by CW Capital of Boston.

But a sale of the division that oversees the Value Enhancement Funds has dragged on, mainly because its performance history is mixed. For example, last year Fund IV sold a majority stake in a mixed-use development that had become a financial sinkhole. The 1.4 million-sf Lincoln Square project, in Bellevue, Wash., stalled because of leasing and other problems. Local operator Kemper Development has taken over the project.

Lend Lease Corp. acquired Equitable Real Estate Investment Management in 1997 and merged it with Yarmouth Group, a pension-fund advisor that it already owned. The following year, the name of the merged business was changed to Lend Lease Real Estate Investments.