Morgan Stanley’s MSREF VI fund has collected $8bn. This total will be leveraged up to in excess of $30bn to make property investments around the world but with a heavy emphasis on the Japanese market (50%) and emerging markets (25%). However, Reuters report that 30% of the fund is earmarked for Europe and 60% for Asia, which would appear not to allow as much for the Chinese and Indian markets as other reports are hinting. The MSREF series of funds currently have real estate assets worth $83.5bn and $31.6bn under management.
The new fund is intended to have a return of 20% a year, in line with Morgan Stanley’s overall success with these types of fund since 1991. To date 45% of the MSREF VI funds are reported to be committed, including the $2.4bn purchase of 12 hotels and two property management units from All Nippon Airways. It is not apparent to what extent MSREF VI will be buying up portfolios of non-performing loans in its target market, one of its customary investment strategies.
Morgan Stanley and Goldman Sachs are currently engaged in a bidding battle for Berenice Fondo Uffici and Telca Fondo Uffici of Italy. Goldman Sachs’s Whitehall Street Global Real Estate LP 2007 has raised $4.07bn. Whitehall Street announced the acquisition of Equity Inns. A hotel owning real estate investment trust, for $1.27bn last week; part of the deal is $900m worth of Equity Inn’s debt. Whitehall’s US investments tend to be distressed or niche and the fund series is, like MSREF, described as ‘opportunity’ or ‘opportunistic'(read pdf fund summary).
MSREF VI’s fees will include a 0.25% fee for the acquisition of each property in the fund and an ‘incentive fee’ of 20% of asset value gains (up from 17% for earlier funds in the series). In the light of reports that private equities profit-related fees are under pressure from big investors such as pension funds, the success of MSREF VI in this attracting so much capital seems surprising. However, the positive trends that the fund anticipates continuing are good market fundamentals in a number countries and the move towards divestments of good quality property holdings by large number of manufacturing and service companies (not least when private equity acquirers sell these assets).
John Carrafiell, MD and Global Co-head of Morgan Stanley Real Estate Investing affirms the company’s commitment to the property market on the grounds that funds such as MSREF VI offer portfolio diversification with returns that are not correlated to those of other asset types. However, as mentioned before in Overseas Property Mall, this would necessarily seem to be true in the case of the Japanese property market.
Interest in non-US property could be seen as chiefly being a gamble on continued declines in the value of the US dollar. Stephen Coyle of Citigroup Real Estate Partners has exactly reversed the 65:35 ratio of US investments to overseas ones in the last 24 months. For a very thorough analysis of what’s on offer in MSREF VI, read the PSERS Private Investments recommendation (pdf).