Property Funds

Donald Trump

No one could accuse Mr. Trump of not being prepared to blow his own horn, in fact, he even took a stand against Forbes magazine when they included him on their Forbes 400, claiming that Forbes had underestimated his wealth by $4 billion. We hesitate to call it class, but it has a certain flair. Despite nearly losing his shirt in the 1990’s real estate crash, “The Donald,” managed number 117 of this years Forbes 400 with an estimated wealth of $3 billion, although according to the man himself, “I’m worth $7 billion.”

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In the first of a weekly series this month on REITs we look at their introduction in Germany.

Legislation for German Real Estate Investment Trusts was only passed by the Bundestag on 23rd March this year, though it was with retrospective effect back to 1st January 2007. It seems too soon to draw accurate conclusions about the success of the change although there is an enormous potential upside for German property.

To evaluate developments over the next 12 months or so it’s important to register that both the German property sector in general and the legislation of Angela Merkel’s coalition government to establish REITs have special features that make the situation different from, for instance, the UK, one of the other newcomers on the block.

Taking the general distinguishing characteristics of the German property first of all, the most obvious of these is the size of the real estate sector. Estimates vary in the range of roughly 6.5 to 7.2 trillion Euros, making Germany by some way the European Union’s largest property market. However, up until now the term ‘market’ may have been slightly misleading as Germany has not only had a large proportion of rented housing (57% of the total) but (more significantly for investors) a very high level (73%) of commercial property owned by the companies utilising or occupying premises. The equivalent proportion in the United States is 25%.

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Beauty may be in the eye of the beholder but property assets need checking up on and that is especially true for UK investors, for many of whom, REITs will be a new form of investment, only available since the beginning of 2007. While some of the new UK REITs will be the giants of the county’s property sector, such as Land Securities (converting from a listed company to a REIT), the investor needs needs to have as detailed a picture of real estate held in the REIT as possible. Land Securities, for example, has been adversely affected by a concentration retail property holdings making vulnerable to the least profitable segment of the property market.

It is to be hoped that UK REITs will tend towards the large end of the range if investor confidence in this of investment is to take root. However, whatever the size of the REIT, there’s no avoiding to follow press comment about it’s performance in general, the calibre of the management and specific properties in its portfolio. The likes of Land Securities and British Land are not going to sink below the sights of the financial press (or sink at all, hopefully) but there may be issues of transparency when considering a REIT that’s one of a succession of investment vehicles promoted by the likes of real estate investment management companies, a model that is fairly common abroad. In these instances it’s essential to find out as much as possible about the quality of the assets going into the REIT from prospectus to try to identify any ‘bad egg’ diluting the potential of the investment.

In connection with the distinction between these REIT variants, the UK regulatory situation is that REITs have to be formed out of main-market quoted companies. Whether this implies that no further UK REITs will come into being after the property sector of the London Stock Exchange have converted themselves remains to be seen.

Aberdeen Property Investors, part of Aberdeen Asset Management, is to launch a commercial property fund specialising in Russia and (later on) Eastern Europe. The fund will be managed by Baltic Property Trust

Nucleus Global’s Europe/Asia Bet, One Year On – The fund’s UK property funds were sold 12 months ago and the proceeds went to European and Asian trusts (particularly Indian and German investments). Since then the fund’s performance has been only modest. It’s investment in AIM-listed Trinity Capital, which invests in Indian infrastructure has not yet delivered a good return owing to hedge funds divesting.

CB Richard Ellis Launches a US Corporate Leasing Site – The website – – offers data on subleased commercial property available at a discount. Pre-approved deal terms have been negotiated by CB Richard Ellis’s own brokers. CBRE’s office vacancy and industrial availability indices for Q1 2007 were relatively stable.

Jones Lang Lasalle Merges Indian Operations with Trammell Crow Meghraj to Form Jones Lang Lasalle Meghraj. The merged entity will be headed by Mr Anuj Puri, the former Managing Director of TCM, and the Jones Lang country chief, Vincent Lottefier, will become CEO. The company will employ 2,800 and maintain offices in 10 Indian cities.

Bavaria Hotels International Signs New Management Contract in Sharjah, UAE. The contract is for the management of an all-suite property owned by Doha Real Estate. As with other Bavaria Hotel’s contracts, Siemens’ comprehensive hospitality solution will be implemented.

International Investment Bank’s Abu Dhabi Property Fund. The Bahrain bank’s new fund will start with $65m for investments in projects relating to the Emirate’s Danet Abu Dhabi Master Development Project, begun by Al Qudra Real Estate.

JER Partners Raises 809m Euros for its Third European Property Fund, The US private equity group (JER partners) classes this as an opportunistic fund, one with more flexibility in the types of property investments it can make. The fund is already committed to buying London’s Great Eastern Hotel and property portfolios in Italy and Germany.

Lehman’s Jack Malvey Says the US Housing Downturn Could Last until 2011. However, Malvey, Lehman’s chief global fixed income strategist, said that he wasn’t expecting a general economic downturn in the US. Growth and inflation prospects in the rest of the economy mean that the Federal Reserve is unlikely to be able to provide relief to mortgagees in the shape of lower interest rates.

The Governor of the Irish Central Bank is Expecting a Soft Landing for Residential Property. The irish Independent quoted John Hurley as forecasting ‘low single digit growth’ for 2007 as a whole; there has been a slight decline in Irish residential property prices in the first five months of the year after five straight years of rising prices.

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New Star Logo

New Star’s new international property fund will be the only UK onshore investment fund to include Asia and the Pacific Rim in its remit. With the significant exception of the United States, the fund’s investments will be worldwide*; it is being marketed as Eurasian. An added attraction is that the fund’s holdings will be directly in real estate rather than in property companies.

The New Star website lists five properties that it says are indicative of the kinds of property it will be bidding for. Three of these are European (in Amsterdam, Berlin and Munich), one is Japanese and the fifth is in Sydney. The fund brochure also lists properties in Hong Kong, Singapore and Melbourne in this context. The fund’s remit is exclusively commercial property. The fund won’t actually be able to invest in any of these properties until it’s launch phase target of £200m has been reached but with the base rate at 5.5% this could be said to be a good time for launch phases. The retail offer period closes on 4th June. Eventually, the fund aims to be 80% invested in particular properties. The balance will be held in (property) shares or REITs.

Permission for UK Real Estate Investment Trusts (REITs) to launch in January 2007 was one of a series of changes to the property investment scene brought about by the UK Treasury in the last few years. It follows the change in unit trust rules in March 2004 that allowed unit trust funds to be 100% invested directly into property. In December 2005 these funds were opened up as an option for ISA purchasers.

Investors have had to wait over three years since Gordon Brown first announced that REITs were being considered in order to give savers another way of investing in commercial property. Last year the Chancellor made a last minute decision to exclude direct investment in property from the new self-invested pension plans (SIPPs) with the exception of halls of residence and property syndicates above a certain size.

When looking at alternatives to direct investment in property the field is now looking fairly full and it’s helpful to distinguish between the different species and sub-species and their different strengths and weaknesses.

Property Investment Companies

First in the list are property investment companies. Share price services such as Thomson Datastream show that there about 50 property companies listed on the LSE main market’s property sector with a further 90 quoted on the AIM market. Some of the leading UK property companies (10 of them by mid-February) had metamorphosed into REITs but, confusingly, they still appear with as property companies of the share price pages in the newspapers.

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GLASGOW tycoon David Lockhart is laughing all the way to the bank after pocketing £11million. He made the killing after deciding to sell his property group Halladale to an Australian firm for £171m. The multi-million pound pay-off is a bumper dividend for the former family lawyer who launched his property firm from rented premises in Gordon Street in Glasgow 16 years ago.

The workforce of 42 manage assets worth almost £1billion. Halladale has a comprehensive property portfolio, much of it centred on office accommodation in London and South East England. The firm also has a fund management division.

Halladale has been bought by Stockland, Australia’s largest housing developer. Mr Lockhart is to become executive chairman.

Source: Evening Times

Also read: Australian firm Stockland makes first move into Europe

Morgan Stanley, the largest real estate investor among Wall Street banks, is raising as much as $8 billion for its sixth international property fund in what would be the biggest-ever high-yield real estate fund.

“We continue to see significant investment opportunities outside the U.S., dominated by activity in Japan,” Jay Mantz, global co-head of Morgan Stanley Real Estate, told the Washington State Investment Board’s private markets committee during a fund- raising presentation in Olympia yesterday. The committee recommended an investment of $440 million in the fund.

Real estate firms are raising record amounts from institutional investors such as pension funds that are seeking higher returns than stocks and bonds. Morgan Stanley is raising an opportunity fund, a type that seeks annual returns of about 20 percent or more. The fund will be invested outside the U.S., with 75 percent in developed markets such as Japan and Germany and 25 percent in emerging markets led by China and India.

Morgan Stanley increased its fees with the new fund, Morgan Stanley Real Estate Fund VI International, which would surpass the $5.25-billion Blackstone Real Estate Partners V fund raised by New York-based Blackstone Group LP in June.

Morgan Stanley Real Estate has acquired about $62.3 billion of property assets worldwide, including Canary Wharf in London, that city’s second financial district. The firm in July made its first real estate in Russia, buying a stake in a local developer, and plans to increase investment in China and India, where fast economic growth is creating more demand for housing and retailers.

`Matched by Few’

“This platform for international real estate investment is matched by few firms,” Michael Humphrey of Courtland Partners, a real estate consultant to Washington State, told the pension trustees. “They have a great deal of skill.”

So-called real estate opportunity funds, many of which got their start buying troubled mortgages from the U.S. government during the early 1990s savings and loan debacle, aim for returns of 20 percent or more. They invest in areas deemed higher risk such as nonperforming loans rather than traditional stable income- producing assets.

Morgan Stanley for the first time plans to charge an acquisition fee of 25 basis points on new investments, Humphrey told the panel. The firm also increased its share of profits after certain return targets are met to 20 percent from 17 percent. These terms would apply to large investors such as Washington, Humphrey said.

“They’ve got the Cadillac vehicle and they’re charging for it,” Humphrey said. “There’s that much capital in the marketplace.”

$30 Billion to Invest

Based on a standard management fee of 1.5 percent of capital committed, the new Morgan Stanley fund would generate $120 million annually in management fees alone. The actual fee on the fund wasn’t disclosed.

Adding borrowings to the fund’s equity of $8 billion could give Morgan Stanley as much as $30 billion to invest, Humphrey said.

“That is a level we haven’t seen before,” he said. “The immediate question that comes to mind is can they access investments at a pace that’s reasonable, given that level of capital,” he said. “Are they simply ramping up the dollar amount of the fund to enhance the level of fees?”

Yields, or capitalization rates, on real estate probably won’t fall much further, said Sonny Kalsi, global head of investing for Morgan Stanley Real Estate. “As we look at things globally, we think cap rates are more likely to go up,” Kalsi told the committee. Economic conditions remain favorable for property income growth in cities such as Tokyo, London and Shanghai,” he said.

Morgan Stanley already has invested about $900 million of equity for the new fund as of Sept. 30 and expects that total could double by the time the fund is closed, Kalsi said. He didn’t specify when a final close would occur.

Source: Bloomberg

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NEW YORK, Sept 12 (Reuters) – Morgan Stanley Real Estate, a division of investment bank Morgan Stanley on Tuesday said its Special Situations Fund III has raised $2.24 billion of equity to invest primarily in real estate debt and equity securities around the world.

The buying power of the fund could double depending upon the level of debt the fund will use along with its equity, said John Carrafiell, managing director and global co-head of Morgan Stanley Real Estate.

The fund will invest predominately in public or private debt and equity securities that are based on the performance of real estate assets. However the fund is not precluded from acquiring minority interests in physical real estate assets, Carrafiell said.

The fund also could invest in real estate derivatives as a hedging device.

“In that sense, we will look at derivatives to protect our return,” he said.

Investors include institutional and Morgan Stanley Global Wealth Management investors from North America, Europe, the Middle East and Asia as well as Morgan Stanley, which invested 25 percent of the total initial equity raised.

“Special Situations targets investments in market-leading real estate companies in growth and developed markets with high barriers to entry where investors often find it difficult to access deal flow, including China, India, Russia and Central/Eastern Europe where we have already deployed significant capital,” Carrafiell said.

The fund will also invest in developed markets such as Japan, the United Kingdom, Western Europe, the United States, Hong Kong and Korea where corporate and financial restructuring opportunities exist and where the private markets value real estate higher than the public markets.

“We’re looking for above-average risk adjusted returns, based on the market, the transaction and the asset we’re investing in,” he said. “The interesting thing about this fund versus a pure opportunistic fund is that it does not have a single point-return target.”

In that way, the fund will offer investors more of a portfolio-like exposure to risk, as it includes various investments that not only carry differing degrees of risk, but also react differently and sometimes opposite to different market and economic conditions. This helps mitigate risk while boosting or protecting returns.

The fund is the third in a series of successful real estate funds. Special Situations I, which is fully liquidated, launched in 1997 and invested primarily in the United States and Asia. Special Situations II launched in 2000 and invested solely in Europe

.Source: Reuters

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Morgan Stanley announces investment of $65 million in Alpha G: Corp Development, an India focused real estate developer.

Morgan Stanley announced Monday (July 17) its second foray into India’s real estate sector via an investment of $65 million in Alpha G: Corp Development Private Limited (Alpha).

Alpha was founded in 2003 by a management team, which includes Colonel R.S. Sodhi and Mr. S.K. Sayal and is backed by Mr. Ghanshyam Sheth and the Mulji and Choudhurie families. It develops projects in northern and western India and has been involved in developments in India’s business process outsourcing (BPO) hub of Gurgaon as well as in Amritsar, Jaipur and Ahmedabad.

The team at Alpha has been together for a decade and was earlier a part of GESCO (the demerged real estate division of Great Eastern Shipping). In a short period it has acquired 450 acres of land.

“Alpha represents an opportunity to partner with a best in class and deeply experienced management team with a unique and highly scalable business model in a region of the country where we continue to expect tremendous growth. We continue to believe India represents a compelling real estate investment opportunity and this investment is a continuation of our India strategy,” says Zain Fancy, executive director and head of Morgan Stanley Real Estate in Asia-Pacific.

In March 2006, Morgan Stanley paid $68 million for an undisclosed minority stake in Mantri Developers, a privately-owned south-India based developer of retail, residential and commercial projects. Like in the case of Alpha, Morgan Stanley cited the quality of the management team as a key driver of its investment decision.

Geographically, Morgan Stanley is covering a number of India’s fastest growing cities through its investments with Mantri based in India’s information technology hub, Bangalore. Through the Alpha investment Morgan Stanley has now got a toehold in north and west India as well.

Real estate is the new flavour of the month in India. The country’s burgeoning middle class now has access to competitive home loans and this has fuelled the demand for residential properties in the country’s main employment centers.

Quality offices are perennially in short supply and the government has been liberalising foreign investment norms in the sector, allowing those who have been watching on the borderline to play a more active role.

Other international investors looking at this market includes Singapore’s CapitaLand, which recently took a stake in Pantaloon-promoted retail-led fund Horizon.

Related Articles: Official Website of Alpha G:Corp