Morgan Stanley Investment Management (MSIM) is buying US real estate debt specialist Mesa West Capital.

Mesa West, which manages close to $5bn (€4.25bn) in assets, will retain its brand and operate as a separate business unit within MSIM’s $47bn Real Assets group.

The company’s headquarters will remain in Los Angeles, and Mesa West senior management, led by co-founders Jeff Friedman and Mark Zytko, will continue to manage the company on a day-to-day basis.

Dan Simkowitz, head of MSIM, said: “Mesa West is a perfect addition to our suite of strategies across real assets and private credit.”

MSIM is moving into the US real estate debt funds sector at a time of growth. As reported by IPE Real Assets, growing demand from institutional investors has sparked a proliferation of new funds and strategies.

In the latest edition of the magazine, Ryan Krauch, a principal at Mesa West Capital, told IPE Real Assets that investors are becoming cautious about commercial property values and debt is increasingly being seen as preferable to equity as a way to invest in the market.

“Our investors understand that they can often achieve better going-in yield and average cash-on-cash returns by lending on high-quality assets than they can by buying them, while at the same time being in the most senior position of the capital stack,” Krauch said.

The transaction is expected to close in the fourth quarter.