MSREI buys A$1.1bn Australian RE funds platform

Morgan Stanley Real Estate Investing continues its investment spree with the acquisition of the struggling fund management business of Orchard Capital Investments via various cash injections, loans, underwritings and rights issues totalling about A$200 million.

The real estate investment management business of Morgan Stanley has started the New Year by significantly increasing its exposure to Australian and New Zealand real estate.

Morgan Stanley Real Estate Investing (MSREI) has acquired the funds management business Orchard Capital Investments, an Australia and New Zealand property platform with approximately A$1.1 billion (€874.6 million; $1.14 billion) of assets under management across various institutional and retail funds. The deal was announced by Melbourne-based Orchard today.

The investment marks the continuation of an aggressive acquisition period for MSREI, which last month won an extension of 12 months to invest about $2 billion its $4.7 billion global opportunity fund, Morgan Stanley Real Estate Fund (MSREF) VII Global. It also marks the first platform acquisition by MSREI in Australia since it bought Investa Property Group for A$4.7 billion in 2007.

As part of the transaction, MSREI has agreed to provide capital to three of Orchard’s funds via various cash injections, loans, underwritings and rights issues amounting to a total of A$200 million during the first quarter of the year. The funds include the Orchard Diversified Property Fund, the Orchard Diversified Office Fund and the Chevron Renaissance Property Trust.

MSREI also will inherit other Orchard-managed funds that do not require recapitalisation but “will benefit from a reinvigorated and debt-free manager, which will assist in financing, leasing and sale negotiations,” Orchard said in a presentation to investors.

In November, Orchard announced that it had entered into an exclusive dealing period, without naming MSREI as the counterparty, “for a significant transaction in relation to Orchard’s funds management business.”

According to local reports in Australia, the business had been touted for sale on various occasions over the past two years after it hit financial difficulties following the advent of the credit crunch. With its funds indebted to a number of banks including National Australia Bank, terms nearing expiration and its loan-to-value ratios in serious need of addressing, there had been fears of forced wind-downs.