MSREI to close Korea operation in Asia strategy shift

Morgan Stanley Capital Korea, the real estate investment entity responsible for managing the Korea acquisitions on behalf of the Morgan Stanley Real Estate Funds, is to close by the end of the year, as the firm’s investing strategy in Asia shifts.

Morgan Stanley Real Estate Investing (MSREI) is to close its office and investment activities in Korea ten years after entering the country.

According to sources familiar with the matter, MSREI will close the investment entity responsible for making investments on behalf of the Morgan Stanley Real Estate Funds series (MSREF), known as Morgan Stanley Capital Korea (MSCK).

The office closure, expected by 31 December, will result in MSCK’s approximately 10-strong team, led by Korea head Jin Eu, leaving the business although some are expected to join some of MSREI’s joint venture partners in Korea.

A spokesperson for MSREI confirmed the closure to PERE however stressed that Morgan Stanley’s wider operations in Korea would not be affected. He said: “The firm is restructuring its real estate investing business in Korea however our wider business in this market remains unaffected.”

One PERE source said MSREI’s decision to close the office coincides with the evolution of its investment strategy in Asia. He said: “The decision to close was strategic. MSREI is focused on value added and distress plays in the developed markets and strong growth plays in the emerging markets. Korea does not fit into either category, in part because of the relative stability of its real estate markets since the global financial crisis.”

MSREI has been an active investor in the Korean market for more than 10 years, particularly in Seoul office building developments. Investments include Samsung Plaza in Bundang Square (pictured) and the Daewoo Building in Seoul Square, the former has been sold to AIG Global Real Estate while a stake in the latter was sold recently to Singapore’s Alpha Investment Partners for $210 million.

Market sources said the firm was seeking to divest from its remaining investments over time, many of which were made via MSREF VI, its $8 billion 2007 global opportunity fund. Closed immediately prior to the global economic downturn, the firm has had to write down significant portions of its equity in its investments globally, alongside many of its rivals, as the vintages that followed produced poor returns.

MSREI’s Korea portfolio is expected to be divested as part of the wider strategy to focus its investment endeavours elsewhere in Asia. While some market sources suggested sales would be quick, Morgan Stanley refuted this. The spokesman said: “There’s no pressure to sell our existing assets. Exit timing will be dictated by the right conditions to maximise investment performance.”

Going forward, MSREI will focus its Asia efforts on Japan, India, China, Hong Kong and Singapore through MSREF VII, the follow-up to MSREF VI, which closed on $4.7 billion earlier this year, and Special Situations Fund III, a global open-ended fund which makes non-controlling, minority investments in public and private real estate companies. While the firm will not have an investing entity in Korea, it is still possible investments could be made in the country from its wider real estate investing business.