MSREI strikes compromise with G7 investors

The largest investors in the $4.7bn Morgan Stanley Real Estate Fund (MSREF) VII Global have notionally agreed to extend its investment period by 12 months in return for the cancellation of $700 million of capital commitments and a small reduction on various fees.

Morgan Stanley Real Estate Investing (MSREI) is set to be granted a new lease of life for its latest global real estate opportunity fund, Morgan Stanley Real Estate Fund (MSREF) VII Global.

The largest investors in the fund, which attracted $4.7 billion of equity commitments at final closing in May 2010, have notionally agreed to an extension of 12 months to its original investment period which concludes next June.

However, by way of compromise, the investors are requesting the cancellation of $700 million of the fund’s approximately $2.7 billion of uncommitted capital and the trimming of various fund fees.

Large investors in the fund, also known as G7, include General Motors, Government of Singapore Investment Corporation, Canada Pension Plan Investment Board, and the China Investment Corporation.

The agreement, which is now expected to be ratified at the end of the month, is understood to have been warmly received by MSREI which now has the best part of 18 months to invest $2 billion of capital into global real estate markets still reeling from widespread economic uncertainty.

MSREI has of late stepped up its investment activity for the fund, particularly in Europe and Asia, after recently switching its focus from the US where it has already closed on more than 20 investments including acquisitions of residential condominiums, single-family residential properties and non-performing loan portfolios.

Last month for example, MSREI was named preferred bidder for a Spanish loan book once valued at €3 billion being sold by Santander. Reports last month also linked MSREI to further real estate loan acquisitions including 15 loans made to Gold Coast properties in Australia valued at A$700 million. The fund’s capital has also been deployed in a series of small deals in Japan.

While the extension represents an endorsement by its investors of the G7 fund – with one investor telling PERE that its vote would be based solely on the needs of its portfolio today and the actual vehicles’ performance and not the performances of MSREI’s prior MSREF funds – whether there will be another MSREI global real estate opportunity fund remains undetermined.

G7 is currently generating IRRs of north of 20 percent from its early investments, PERE understands, in line with its expectations. However Olivier de Poulpiquet, MSREI’s co-chief executive officer and co-chief investment officer, told PERE’s Asia roundtable in October that while a global fund offered MSREI the flexibility of switching continental focus easily, regionally focused funds were a “pretty smart approach”. He said at the event that investors were also able to achieve portfolio diversity themselves by selecting from a range of managers across geographies and asset classes.

MSREI declined to comment.

To read PERE's analysis of the G7 investor vote, published this month, click here.