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Morgan Stanley Making Real Estate Comeback

12/03/2015

Recovering from a downturn, Morgan Stanley’s new global fund draws $1.7 billion. Although the third quarter was dismal, this NY-based investment firm experienced something positive from a unit with significant losses during the property bust.

Fundraising efforts carried out over the summer wrapped up, creating Morgan Stanley’s first higher real estate fund over the past eight years. Having attracted $1.7 billion in commitments from various investors, including Australia’s sovereign-wealth fund and CIC, among others, the global fund campaign was highly successful.

The success of this investment firm comes from values in commercial real estate that hit record highs in certain markets. In addition, deal activity is on the rise for Morgan Stanley. While some large investors are taking full advantage of higher prices in the form of selling, several institutional investors and pension funds have a renewed interest in taking risks.

Although this new fund for Morgan Stanley falls shorts of what the firm raised prior to 2007, it remains a significant victory, especially since many within the real estate industry predicted the high-risk fund business of the firm would fail because of high-profile losses.

As explained by Co-Chief Executives of Morgan Stanley, John Klopp and Oliver de Poulpiquet, who both joined the firm five years ago, the market is extremely competitive right now. Therefore, raising capital takes a tremendous amount of work that involves looking everywhere.

Initially, the unit focused on raising money to purchase buildings that were 100 percent leased and in excellent locations, as well as other core properties. But more recently, investors have focused on opportunity funds for buying into new developments, fixer-upper buildings, and land—something that comes with greater risk. The goal was to see a return on investment of at least 20 percent.

While the $49.6 billion in funds raised this year is a record following the recession, it still falls short of the $74.2 billion from 2008. Already, roughly one-third of the new Morgan Stanley fund has been committed. With the funds, 10 deals are closed and 7 more are near closing. Because commercial real estate is highly competitive in certain cities, including New York City and London, the fund is focusing on properties elsewhere, such as Honolulu, Vienna, and Tokyo.

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