UNITED STATES - Morgan Stanley Real Estate has attracted $2.5bn (€1.6bn) of institutional capital for the latest round of fund raising for Special Situations Fund III.

This commingled fund has a unique capital raising strategy as it is setup as an open-ended fund, but is not open to new investors all the time.

Special Situations Fund III is now closed and will not be open to new capital until March 2009. But it attracted some of the largest US public pension funds to invest in it, including $200m contributions each from Washington State Investment Board and California State Teachers Retirement System (CalSTRS).

Leverage placed on the commingled fund is in the range of 40-60%.

Special Situations Fund III is designed to have a flexible investment strategy so will focus on making non-controlling investments in a variety of real estate companies.

It will also be taking a harder look at investing more capital into distressed opportunities, a good portion of which will be with the debt markets in the developed countries such as Japan, the United States and Western Europe.

Some of the capital in the commingled fund will also be invested in emerging market such as India, Poland, North Africa and Brazil.

Morgan Stanley now has a three-year investment period to place the capital that it just raised.

Special Situations Fund III had total equity commitments of $4.8bn by the end of 2007.  There are 62 closed investments in the fund.