Morgan Stanley Real Estate Investing, the private equity real estate business of New York-based investment bank Morgan Stanley, this month faces a crucial vote by the limited partners of its latest global opportunity real estate fund to determine whether the vehicle can continue to be invested.
Investors in Morgan Stanley Real Estate Fund (MSREF) VII Global, which include the likes of General Motors, Canada Pension Plan Investment Board, China Investment Corporation and the Government of Singapore Investment Corporation, are to vote on whether to grant the fund a 12 month to 18 month extension of its investment period, which is scheduled to come to an end in June next year.
According to Private Equity International sources familiar with the matter, MSREI requires a two-thirds majority vote by capital – large investors in the fund carry more votes – to obtain the extension, and importantly, more breathing space to invest what is essentially still a mountain of dry powder. It is understood that of the $4.7 billion raised for the fund last year, less than $2 billion had been deployed into the market by last month.
In the meantime, MSREI has stepped up its investment activity for the fund, particularly in Europe and Asia, after recently switching its focus from the US where it has already closed on more than 20 investments including acquisitions of residential condominiums, single-family residential properties and non-performing loan portfolios.
Last month for example, MSREI was named preferred bidder for a Spanish loan book once valued at €3 billion being sold by Santander. Reports last month also linked MSREI to further real estate loan acquisitions including 15 loans made to Gold Coast properties in Australia valued at A$700 million. The fund’s capital has also been deployed in a series of small deals in Japan.
A green light from investors to continue investing MSREF VII Global, also known as G7, would provide MSREI with a further chance to show the private equity real estate world that it is still a potent opportunistic investing force after revealing sizeable losses from its 2007 vintage MSREF funds, including the one-time largest private equity real estate fund ever raised, the $8 billion Morgan Stanley Real Estate Fund VI International.
One factor that may influence a positive outcome for the MSREI fund is a change of leadership at the platform that occurred towards the end and after the fundraising for G7. Indeed, of 13 senior executives originally specified as key men for the benefit of certain large investors, 12 have either resigned or been dismissed. They were since replaced by a five-strong key man contingent that is in place today, including co-chief executive officers and co-chief investment officers, Olivier de Poulpiquet and John Klopp. Both joined in 2010 just before MSREI held its final closing for MSREF VII Global.
Furthermore, according to sources, the fund has performed well so far and is currently generating IRRs north of 20 percent from its early investments.
MSREI declined to comment.