Morgan Stanley ‘may’ hand back $2.4 billion Japanese hotel chain

Morgan Stanley may soon become embroiled in another situation where it must hand back the keys on a large real estate portfolio.

According to a report by The Wall Street Journal, Morgan Stanley, which traditionally invests in real estate through its Morgan Stanley Real Estate Investing division, may hand back a portfolio of 13 hotels in Japan, originally acquired for $2.4 billion from All Nippon Airways in 2007.

The report said that two of the main lenders, Citigroup and Shinsei Bank, are keen for Morgan Stanley to allocate more equity into the investment after valuations in the sector fell away steeply.

Should Morgan Stanley hand back the hotels, it would be the second large portfolio it has relinquished already this year. The Financial Times reported earlier this week that Morgan Stanley has handed back the keys on a €2.1 billion German portfolio in Europe to lenders Royal Bank of Scotland.

The debt for the Japanese hotels portfolio comes due in April. The Wall Street Journal added that GIC, another lender in the investment, is keen to assume control of the assets and is in dialogue with the other lenders to do so.

Morgan Stanley has been a big investor in Japanese real estate in recent years. Reuters said in a report in 2006 that the bank managed a portfolio valued at more than $10 billion in the country and that roughly two thirds of its $4.2 billion Morgan Stanley Real Estate Fund V International, was deployed in Japan.

Fred Schmidt, who was leading the firm’s Japanese investment programme, resigned from his position recently in order to start his own opportunistic funds platform. His duties were assumed by Yoshi Shigenari, a long-serving executive of the investment bank.