Morgan Stanley’s (MS) $4.7 billion real- estate fund, known as MSREF VII, will probably win approval to extend the deadline for finding new investments into 2013, a person familiar with the discussions said.
Investors in Morgan Stanley Real Estate Fund VII have indicated they will allow the New York-based company to approve extending by one year the June 2012 deadline in exchange for lower management fees and a $700 million reduction in its size, according to the person, who declined to be named because the talks are private.
MSREF VII closed fundraising in June 2010, raising less than half the $10 billion target it had before the financial crisis after steep declines in previous Morgan Stanley funds and a falling real-estate market. Morgan Stanley, which manages a total of $43 billion in real-estate assets, has invested just $2.5 billion of the $4.7 billion of the fund’s committed capital, the person said.
Final votes on the extension aren’t due until the end of this month, the person said. Investors in Fund VII include the Pennsylvania Public School Employees’ Retirement System, China Investment Corp. and the Canada Pension Plan Investment Board.
The Wall Street Journal reported the discussions about cuts to fees and the fund’s size earlier today. Matt Burkhard, a Morgan Stanley spokesman, declined to comment.
MSREF VII has made investments including a portfolio of retail buildings in Germany and a 150 million euro ($195 million) mezzanine loan for a European luxury hotel owner controlled by a Blackstone Group LP fund. It also has purchased a shopping mall in St. Petersburg, Russia, and a set of distressed real-estate loans in Australia.
Morgan Stanley recorded about $4.4 billion in real-estate losses in 2008 and 2009, including losses from its investment in the MSREF funds. The firm told investors last year that it expects to lose $5.4 billion of its $8.8 billion MSREF VI International fund from 2007, a person familiar with the situation said at the time.
Last year the firm named John Klopp and Olivier de Poulpiquet co-chief executive officers of its real-estate investing business to stabilize the unit after billions of dollars of losses in its funds.
Morgan Stanley’s real-estate investing business had $43 billion of assets under management as of June 30, with 37 percent in Asia, 36 percent in the Americas and 27 percent in Europe. MSREF VII invests in property in the U.S. and internationally. Morgan Stanley’s own investment in the fund amounted to less than 10 percent of its total capital.
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