Morgan Stanley in joint venture with Lane Co.

US - Morgan Stanley Real Estate and property outfit The Lane Company have come together to establish a joint venture to invest in residential property.

Equity of $150 million has been put into the venture. The amount of leverage will be in the ballpark of 65% to 75%. This will generate a total capitalization of around $500m. Morgan Stanley had several people working on the project, one of them being executive director Dexter Warrior at the firm’s Atlanta office.

The leveraged IRR returns for the venture will vary from 10% or 11% on the core purchases to the low 20% range for value added/developments. These returns assume a five- to 10-year holding period.

The joint venture has yet to purchase any properties. The goal is to make the initial investment over the next 90 days. There will be a three-year investment period for the venture and this could be extended.

Morgan Stanley hopes that The Lane Company will be able to find deals because of its access to transactions. Many of the top pension fund managers in the United States are having a hard time finding deals on their own. Many are looking to hook up with local or regional real estate operating companies to find more deals.

Buying existing apartments will be the main thrust of the deals for the joint venture. There will also will be some condominium conversions and the development of new apartments or condos. One of the people involved in finding deals for Lane is senior acquisitions director Scott Levitt.

When a deal is found, it will be brought back to the joint venture’s management committee for approval. Both Morgan Stanley and Lane are represented on this committee.

The venture will have a focus on the Southeastern markets. Most of the deals will be done in the major metropolitan areas of Florida, Georgia, North and South Carolina and Virginia. Some transactions will be considered in other markets on a selective basis. For example, Lane is considering a deal in Alabama.

The joint venture represents Lane’s first multi-property venture with an institutional partner. All of its previous deals were on single assets.

The Lane Company now owns 8,000 apartment and condo units. This is down from a high of 12,000 to 13,000 units a couple of years ago. The company has been a very active seller over the past 24 months, taking advantage of increased capital values and strong purchasing activity.