Morgan Stanley Real Estate Investing is to be given longer to meet its debt obligations on a $3 billion portfolio of hotel investments in Japan, having previously feared it would have to hand back the keys.
According to a report by Reuters, Morgan Stanley has won a 60-day extension on $2.4 billion of debt taken out when it purchased 13 hotels from Japan’s All Nippon Airways in 2007 – considered then to be the largest ever hotel investment in Asia.
The Wall Street Journal reported in February that Morgan Stanley might have to hand the keys back on the assets after lenders including Citigroup and Shinsei Bank indicated they were keen for the investment bank to pump more equity into the portfolio. The problem arose after values in the sector fell sharply following the global economic crisis.
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.
News of successful debt negotiations by the firm should provide some welcome relief after it endured a torrid week in the media earlier this month following revelations of potential losses from its sixth global investment fund, Morgan Stanley Real Estate VI International (MSREF VI). According to The Wall Street Journal MSREF VI currently faces a $5.4 billion loss – approximately two-thirds of its equity – although with a number of years left, the vehicle may well recoup significant amounts of that equity.
The fund was closed in June 2007 on $8 billion. At the time, it was the largest private equity real estate fund in the world although it has since been overtaken by a fund of New York-based Blackstone.