Morgan Stanley Real Estate Investing is launching a core-plus US real estate fund to invest alongside its existing $14.7bn (€13.3bn) Prime Property Fund.
According to industry sources, the new fund will invest in 70-80% of its capital in the Prime Property Fund, investing the balance in core-plus and value-added properties.
Morgan Stanley hopes to secure $400m-500m this year in an initial capital raise for the new Prime Plus Property Fund. The manager intends for the fund to become much larger over the next couple of years.
The move comes at a time of increased appetite among institutional investors for core-plus and value-added investments as core assets have become an increasingly expensive.
A number of large, core, open-ended real estate funds in the US have long ‘entry queues’ as pension funds wait for their capital to be invested. Morgan Stanley’s Prime Property Fund currently has $1.4bn in capital yet to be invested, according to board meeting documents of the Los Angeles City Employees’ Retirement System, itself looking to commit $15m.
The new launch also follows a move last year by Blackstone – a manager traditionally known as an opportunistic investor – to launch its first-ever core-plus strategy.
Morgan Stanley’s fund will aim to beat the NCREIF Open‐end Diversified Core Equity Index (ODCE) by 150bps, targeting gross returns of 9.5-11%.
It will target major East and West Coast markets and lot sizes of between $50m and $75m.
Leverage will be kept between 30% and 40%, which is relatively low for a core-plus fund, according to an investment consultant. The Prime Property Fund has leverage of 20.4%.
Morgan Stanley also announced it is selling Australian property platform Investa to China Investment Corporation.