But Carrafiell’s speech was as much about the fundamental trends shaping those markets as it was about the markets themselves. And looking back 12 months later, some of the points he made seem remarkably prescient.
In the US, for example, Carrafiell noted that the trend of public-to-private transactions seemed likely to continue. He noted that despite the huge amounts of capital flowing into the property sector and the significant decline in cap rates, the best assets were being mispriced. Of course, one year later, we’ve seen the acquisition of not just Equity Office Properties, but alsothe announced takeover of Archstone-Smith, two of the largest REITs in the country with two of the highest-quality portfolios. And Morgan Stanley itself has certainly contributed to the trend: Since Carrafiell’s speech, the firm has acquired or announced the acquisition of Glenborough Realty Trust, CNL Hotels & Resorts and Crescent Real Estate Equities.
In Europe, by contrast, Carrafiell described the exact-opposite trend—a movement from the private to the public markets—particularly given the spread of REIT vehicles across the region and the rich pricing seen in many publicly traded entities. That market reality was one factor guiding the bank’s investment strategy of focusing on operating platforms, which could not only provide growth potential and franchise value upside, but also a convenient exit route via the public markets. Four months later, of course, Fortress listed its German residential portfolio, Gagfah, on the public markets.
Speaking of Germany, Carrafiell said Morgan Stanley, like many other opportunistic investors, was actively investing in the country. He predicted that between 2007 and 2009, the firm would spend 15 percent of its capital, excluding investments in the US, in Germany. And just last week, the investment bank, in conjunction with IVG, bought a portfolio of 53 German properties for €2.6 billion. Expect more to follow.
East of Germany, Morgan Stanley has been equally active, particularly in buying minority stakes in property developers. In Carrafiell’s talk last June, he noted that development and re-development opportunities were his firm’s focus in Central and Eastern Europe, and they were equally focused on providing growth capital to what he termed “pre-IPO candidates.” Since then, Morgan Stanley has made three investments in Russian development companies and just last month, the bank made its first property investment in Poland, acquiring a 25 percent stake in a Warsaw-based developer.
Of course, not all of the themes discussed in Carafiell’s address have been proven out. For one, he noted that private-to-public transactions were going to be prevalent in Asia. Yet the news earlier this week that Morgan Stanley was acquiring an Australian REIT, Investa Properties, certainly bucked that trend. In fact, that transaction is igniting speculation that other Australian REITs may be takeover targets as well. And back in Europe, shares of listed UK companies have shot up amid more M&A rumors following the Archstone announcement in the US.
So are the public-to-private trends seen in the US about to spread overseas? Are the trends that have shaped the past year in private equity real estate set to continue? And what other themes will shape the global property markets over the next 12 months?
Well, come find out for yourself. Next week in London, Carrafiell will deliver another keynote address, this time at the 2007 European PERE Forum. You don’t want to miss it.
PS There is still time to register for the 2007 European PERE Forum, which will be held on June 6 and 7 at the Renaissance Chancery Court Hotel in London. Click here to sign up.