MSREF targets US debt deals

After closing its latest opportunity fund on $4.7bn, Morgan Stanley Real Estate Investing believes the US debt space will be an marketplace for the firm. MSREI’s head of Americas and global head of debt investing speaks to PERE.

Morgan Stanley Real Estate Investing has invested just six percent of its latest opportunity fund, MSREF VII Global, which closed this month on $4.7 billion. US debt will be a major focus for the vehicle and the firm looking forward.

John Klopp

“Everything we are doing today starts with debt,” MSREI head of Americas and global head of debt John Klopp told the June issue of PERE magazine. “Virtually everything we are doing is debt related in one way or another, that’s just the shape of the world today,” he said.

MSREI has already closed one of its first US deals for the G7 fund, as MSREF VII Global has been dubbed internally – the recapitalisation of a 564,000-square-foot office in Atlanta, developed by a long-standing Morgan Stanley operating partner, Cousins Properties.

Terminus 200 was a speculative development in the Buckhead area of Atlanta, where vacancy rates were north of 20 percent. Completed in the third quarter of 2009, Cousins had a partial-recourse construction loan on the property coming due and had leased just nine percent of the space – but with a law firm on the sidelines willing to sign a 95,000-square-foot lease. By providing additional equity to help pay down debt and cover tenant improvements and leasing commissions, MSREI helped Cousins extend and restructure the loan with its lenders, taking an undisclosed equity stake in the property in May.

“We are in active pursuit of a number of additional opportunities [to the Terminus 200 deal] and hope to close more in the near future,” said Klopp, who added that he believed the current opportunity was one that would last a number of years.

“We have only seen the tip of the iceberg in terms of opportunities, and for G7 right now, the most active marketplace is the US,” he added. “Over-leveraging is very widespread, the market is beginning to turn in terms of fundamentals and the logjam is beginning to break. We believe, as a team, the US will be very fertile turf for investing.”

To read more about MSREI and the G7 fund close, click here.