Deals

Morgan Stanley closes G7 opportunity fund on $4.7bn

The New York-based firm has started to invest MSREF VII Global –primarily targeting the US, Western Europe and Japan – after allowing LPs to reduce commitments to the new fund. In an exclusive interview with PERE, the firm said: ‘There is a real chance to make a lot of money for our investors’.

By
Zoe Hughes
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Morgan Stanley Real Estate Investing has closed its latest opportunity fund on $4.7 billion, after offering investors in MSREF VII Global the opportunity to reduce their commitments.

The New York-based real estate group had originally been targeting $10 billion of equity when it first launched the fund in late 2007.

Morgan
Stanley HQ
Speaking in the June issue of PERE magazine – out next week – MSREI’s chairman and chief executive officer Owen Thomas and president and chief investment officer Jay Mantz said the vehicle – dubbed G7 internally – had held a final close on $4.7 billion, following “very active” discussions with limited partners, allowing them to reduce commitments.

“We did everything we could to listen to our partners and make accommodations to help them,” said Thomas.

MSREI also offered “significant” concessions to existing LPs in two predecessor funds, the $1.75 billion MSREF V US and the $8 billion MSREF VI International vehicles. The concessions related to management fees, including waiving some and materially reducing others.

The toughest time in your business is when you spend the most amount of time communicating. Now, one year later we’ve accomplished a tremendous amount to recover value for our investors.

MSREI president and chief
investment officer Jay Mantz
The two funds have been badly hit in the wake of the real estate crisis, with Mantz accepting MSREI’s timing was off in the most recent vintage funds. However, Mantz and Thomas said MSREI had refused to retreat into a “cocoon”, and had been actively working with investors and lenders over the past 18 months to recover value from existing investments – and position the firm to take advantage of new opportunities.

“The toughest time in your business is when you spend the most amount of time communicating,” said Mantz. “Now, one year later we’ve accomplished a tremendous amount to recover value for our investors.”

Thomas said the firm was actively sourcing new deals for the G7 fund, particularly in the US with the firm looking to access distressed equity through debt structures. “We have had a big drop in values in real estate around the world – and they have certainly been more precipitous in the US and various areas of Europe and Japan,” said Thomas. “That’s why our primary focus will be on those areas. This is a very unique cyclical opportunity to buy real estate because there is a lot of distress. There is a real chance to make a lot of money again for our investors and we are excited about the future.”

During a wide-ranging and in depth interview, PERE also spoke to MSREI’s regional leaders, including John Klopp, head of Americas; Olivier de Poulpiquet, head of Europe, Middle East and Africa; Yoshihiko Shigenari and Marcus Merner, chief executive officer of Japan and chief operating officer of Japan respectively; and Hoke Slaughter, head of Asia.

We have only seen the tip of the iceberg in terms of opportunities, and for G7 right now, the most active marketplace is the US.

MSREI head of Americas John Klopp
Klopp, who is also leading MSREI’s debt investment efforts, said there was a “perception in the outside world that [MSREI was] not in business for a while. However, he said the firm was actively getting back into the marketplace and “putting our name out there, as ready, willing and able to make new investments.”

In May, MSREI closed one of its first US G7 deals, acquiring an equity stake in Terminus 200, a 564,000-square-foot office in Atlanta, developed by Cousins Properties and in need of recapitalisation.

“We have only seen the tip of the iceberg in terms of opportunities, and for G7 right now, the most active marketplace is the US,” added Klopp. “Over-leveraging is very widespread, the market is beginning to turn in terms of fundamentals and the logjam is beginning to break. We believe, as a team, the US will be very fertile turf for investing.”

To read the full interview with MSREI, see the June issue of PERE magazine – out next week – or click here for details on how to subscribe.