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Morgan Stanley's Arena to liquidate

Morgan Stanley Real Estate Investing-owned Arena Investment Management is to begin a divestment process for three of its frozen real estate funds with A$500 million of assets.  

Three Australian funds property funds controlled by Morgan Stanley Real Estate Investing are to be liquidated, providing the potential for A$500 million ($468.35 million; €354.97 million) to be acquired.

Property broker Jones Lang LaSalle (JLL) has been instructed to begin the wind down of Arena Property Fund (APF), Arena Office Fund (AOF) and Chevron Renaissance Property Trust (Chevron) from September 8, and will be considering a range of proposals for divestment, including selling individual properties, portfolio of properties, offers for investors’ units or business platform style transactions.

The decision to liquidate the funds, which hold investments in traditional office, retail and industrial properties across Australia, comes six years after they were frozen to investor redemptions in the advent of the global financial crises.

Morgan Stanley Real Estate Investing holds 30 to 60 percent equity in each fund with the remaining stake being owned by a network of close to 12,000 retail investors.

“Given the success we have had in leasing the assets and the current strong property market conditions, the board has resolved that now is a good time to test the market,” David Ross, independent chairman of Arena said in a statement.

Formerly called Orchard Capital Investments, the Australia-based group was renamed Arena Investment Management when Morgan Stanley bought it in late 2011 to underwrite the recapitalization of the key funds to reduce debt and ensure subsequent distributions.

APF, the group’s flagship fund started in 1992, had investments in office, retail and industrial assets, as well as other unlisted funds. The fund currently owns three office assets in Adelaide, Sydney and Perth, with a combined gross asset value of A$150 million. The second open-ended unlisted property vehicle, AOF was established in 2005, and has investments in a range of office properties in Australia and New Zealand worth A$343 million in total.

Chevron is a closed-ended fund, with one investment in a retail shopping centre on the Gold Coast in Queensland. The fund’s term was originally seven years, due to mature in 2012, but was extended till 2013. It was ultimately forced to seek a mezzanine debt facility after a fall in the asset value and an overall sluggish property market. 

Following the group’s restructuring, Morgan Stanley acquired a 49.9 percent interest in the fund and refinanced its mezzanine debt facility, providing A$19.5 million in the process.

“The property portfolio comprises nine investment grade assets that will be attractive to investors seeking a scale exposure, geographic and asset class diversity and favorable occupancy and WALE metrics,” said John Talbot, managing director, investment and advisory group, JLL. “It represents a well-leased portfolio with core-plus and value added opportunities.”

Both offshore and domestic listed and unlisted groups, according to Chris Key, head of corporate finance at JLL, have expressed an interest in investing in the portfolio. He refused to divulge any names.

“In assessing the proposals, the board will have primary regard to what the proposals mean in terms of value to investors, the extent of liquidity provided, timing and implementation cost and risk,” said Arena’s Ross. “Our preference is to provide full liquidity to investors, if possible.”

This development follows the announcement made by the group last week about spinning off the management of Arena’s listed childcare property trust. The fund management group also has investments in childcare and healthcare facilities through Arena REIT, and two other wholesale funds.