Morgan Stanley raises largest real estate fund ever

The investment bank has raised $8bn for it sixth international real estate vehicle, a new record. However, Blackstone’s latest fund may soon surpass it.

The real estate division of Morgan Stanley has raised $8 billion (€6 billion) for a new international property vehicle, considered to be the largest private equity real estate fund ever raised. The new vehicle easily surpasses the previous titleholder, Blackstone Real Estate Partners V, which closed on $5.3 billion in 2006.

“Real estate is increasingly becoming an important component of an asset allocation strategy because it offers portfolio diversification and the ability to invest in ‘real’ assets, which provide uncorrelated investment returns compared to other asset classes,” John Carrafiell, managing director and global co-head of the firm’s real estate investing group, said in a statement announcing the close.

According to the firm, more than 45 percent of MSREF VI International has already been invested. The fund is targeting assets, portfolios and property companies in Western Europe, Japan and Australia, as well as emerging markets like China, India, Russia, Turkey and Latin America. Last month, the firm agreed to acquire Australian REIT Investa Properties in a $5.5 billion take-private transaction.

The investment bank chipped in 20 percent, or approximately $1.6 billion, of the fund’s total equity capital, with the rest coming from LPs in North America, Europe, the Middle East and Asia. Last year, Morgan Stanley raised more than $8 billion in three separate opportunity funds: a $1.8 billion US-focused vehicle, a $2.2 billion special situations fund and $4.2 billion for MSREF V International.

But how long the firm will hold onto the “biggest fundraise” crown is unknown. The Blackstone Group is expected to raise approximately $10 billion for its next global real estate fund, which is expected to close shortly. Lone Star is also in the market now with a $6 billion vehicle.

Interest in real estate continues to increase. According to data compiled by Private Equity Real Estate, private real estate funds raised a total of $59.5 billion last year, far surpassing the $37 billion raised in 2005. Funds with a global mandate—like the Morgan Stanley vehicle—accounted for approximately 45 percent of the capital raised in 2006.

Funds currently in the market or coming to market this year are targeting more than $100 billion in capital, according to Private Equity Real Estate.