MSREF in $2bn joint venture with Duke Energy

Morgan Stanley Real Estate has acquired a 49 percent stake in Crescent Resources, the real estate subsidiary of Duke Energy, as part of a joint venture with the Charlotte-based natural gas and energy conglomerate. The transaction values Crescent, a land management and real estate development company, at approximately $2.1 billion (€1.7 billion).

Under the terms of the agreement, Morgan Stanley and the chief executive officer of Crescent, who will hold a two percent stake in the company, will invest $400 million of equity into the deal and the business will be recapitalized with $1.2 billion of debt. Duke Energy will continue to own 49 percent of Crescent and will also receive $1.4 billion of after-tax proceeds.

“The new structure is consistent with our plan to focus primarily on the power business by reducing our investment and risk profile associated with non-core businesses,” said James Rogers, the president and CEO of Duke Energy, in a statement.

According to a spokesperson for Morgan Stanley, Crescent mainly focuses on primary and secondary residential developments in the southeastern United States, though it also has a presence in other property sectors as well as in the southwestern part of the country. The company’s residential projects include country club and golf-course communities, as well as mountain-view and lakeside properties. At the end of 2005, the company also owned or had under development 1.9 million square feet of commercial, industrial and retail space according to filings with the SEC. For the year ended December 31, 2005, Crescent generated earnings before interest and tax of $314 million.

Despite the company’s historic focus on the southern part of the United States, the spokesperson for Morgan Stanley suggested that the company may look to expand its presence across the country.

“We view [Crescent’s] capabilities as not just in those markets,” the spokesperson said. “They can be leveraged nationwide.”

The investment for the transaction came from Morgan Stanley Real Estate Fund V US, a US-focused opportunity fund that is expected to close shortly. Earlier this year, the investment bank raised $4.2 billion for Morgan Stanley Real Estate Fund V International.