MSREI raises first opportunistic capital since 2010

The New York bank’s real estate investment management platform has raised $1 billion for its eighth global opportunity fund in a sign that investors are willing to back its higher risk-return strategies once again.

Morgan Stanley Real Estate Investing (MSREI), the real estate investment management platform of Wall Street investment bank Morgan Stanley, has raised its first opportunistic capital in more than four years.

It is understood that MSREI has raised approximately $1 billion for its Morgan Stanley Real Estate Fund (MSREF) VIII Global, the eighth in its long-dating series of opportunistic real estate funds. The capital comes in a first closing of the fund with further closings expected to happen at a later stage. Ultimately, the platform is aiming to raise between $2 billion and $3 billion for the vehicle.

While that figure, if successfully raised, would be a far cry from the $8.8 billion raised by MSREI in 2007 for MSREF VI, it would signal something of a return for a business that had widely been written off in the minds of rival investment managers and industry observers alike.

MSREI has been investing opportunistically in real estate since its formation in 1991, but the performances of its 2007 vintage investments, made immediately prior to the global financial crisis and by deploying high leverage, almost saw that part of its business come to an end.

MSREI changed its leadership in the years immediately after the crisis and today, under the control of John Klopp and Olivier de Poulpiquet, and with key property markets improving, the platform’s fortunes are thought to have turned for the better.

Another key event in its survival was a vote by the investors of its $4.7 billion seventh fund, also known as G7, to extend its investment period by a year to enable it to invest up to $2 billion of that fund. It is widely understood that these investments have performed well and that has supported the case for investors to show faith in the platform once again.

Investors to have backed the platform over the years include China Investment Corporation, GIC Private Limited, Canada Pension Plan Investment Board and General Motors.

Morgan Stanley itself used to be a big investor in the funds, oftentimes committing a double-digit percentage of the equity. However, in preparation for the Dodd Frank Act’s Volcker Rule, which limits the equity a US institution can deploy in its own funds, the bank restricted its equity involvement to the rule’s 3 percent ceiling.

MSREI declined to comment.