Morgan Stanley raises $6bn for real estate, asks for more time

The Wall Street firm has deferred the final close of its latest global property vehicle because investors have asked for more time. The firm remains confident, however, it is on track to raise its target of up to $10 billion.

Morgan Stanley has raised more than $6 billion for its latest global fund, Morgan Stanley Real Estate Fund VII Global, with another $2 billion soft circled, according to sources.

Investors have also been told by the firm it will be deferring final closing of the fund until the first quarter 2009 after LPs asked for more time.

Those briefed by Morgan Stanley also say the firm is confident it can get close to the original target of $10 billion. Morgan Stanley’s predecessor fund, MSREF VI International, raised $8 billion in June 2007.

Morgan Stanley originally pencilled in a final close of MSREF VII at the end of September, according to public minutes of a June meeting of the Contra Costa County Employees’ Retirement Association.

Those minutes say Morgan Stanley is targeting $10 billion and that it plans to commit up to 10 percent of the fund, capped at $500 million of its own money. The targeted internal rate of return, before fees and other costs, is 25 percent. It has a globate mandate, including the US.

The Pennsylvania Public School Employees' Retirement System is among those already committed to MSREF VII. It has approved a commitment of to $400 million to the fund, which will invest in the distressed real estate debt and equity of large corporations and government entities, as well as investing in China, India, and other emerging markets where demand for quality real estate assets outstrips supply.

Some in the market will take encouragement from Morgan Stanley’s progress on its real estate vehicle given the current economic uncertainty and even recent question marks over the strength of the firm itself. Many firms are experiencing delays in their fundraising programmes. They are being slowed by various issues among potential investors including liquidity concerns, strategy re-thinks and portfolio weightings.

Morgan Stanley declined to comment.