EXCLUSIVE: Apollo Global Targets Real Estate

What's missing from private equity giant Apollo Global Management's IPO prospectus? Chairman Leon Black, a veteran leveraged buyout master, is quietly launching a real estate fund that he hopes will compete with those raised by top dogs Morgan Stanley (MS Quote) and Blackstone Group (BX Quote).

Apollo Global filed in April to raise public funds and sell a stake in the company, which has $40.7 billion in assets under management.

Black's firm was an investor in several major public company leveraged buyouts in recent years, including casino owner Harrah's Entertainment and residential real estate broker Realogy.

Now billionaire Black has begun building out a commercial real estate investment platform that will be similar in focus to Apollo Global's strengths in corporate distressed debt and leveraged buyouts, says a person close to Apollo Global with direct knowledge of the plans.

Along with the new launch, Apollo Global is expected to sever its ties with Apollo Real Estate Advisors, a private equity run by veteran commercial real estate investor William Mack.

The new Apollo Global fund will focus on recapitalizations of public and private real estate companies, privatizations of REITs and other public real estate stocks and will invest in discounted and distressed commercial real estate debt, the person familiar with the plans says. The new fund may also look at homebuilder recapitalizations.

To launch its new platform, Apollo Global recently hired Joseph Azrack, former president of Citi Property Investors, the real estate investing wing of Citigroup (C Quote), the source says.