Goldman property fund posts 98% loss

An international real estate fund backed by Goldman Sachs has reportedly lost almost all its equity following the poor performance of investments in Germany, the US and Japan.

The fund, Whitehall Street International, carried out highly-leveraged transactions during the real estate boom.

The Financial Times said on Friday that the fund is now down to $30 mln in equity from an original total of $1.8 bn (EUR 1.3 bn). This corresponds to a loss of about 98 cents to the dollar.

The financial details, the newspaper said, were outlined in the annual report and letter which was sent to the fund's investors in March.

The fund was raised in 2005 and invested more than half its capital in the US. The second largest investment target was Germany. The impact of the drop in real estate values in both countries was exacerbated by the fund's dependence on debt, the Financial Times said. The letter to investors acknowledged the 'negative impact of leveraged investing in a market in which estimated asset values have declined materially'.

While the fund is working to recover some of the losses. it has also handed back the keys of some properties to creditors.

The news about the Whitehall funds follows the revelation that Morgan Stanley's $8.8 bn (EUR 6.5 bn) MSREF VI fund could lose as much as $5.4 bn (EUR 4 bn) after being forced to take writedowns or hand back the keys on a range of investments around the globe including Europe. The news, which was broken by the Wall Street Journal, was based on fund documents reviewed by the paper.

The losses follow a spate of investments by the MSREF VI fund at the peak of the market and are believed to be the steepest in the history of private equity real estate investment. Japan and Europe account for the bulk of the losses following investments in properties such as a big development project in Tokyo, the European Central Bank's Frankfurt headquarters and Intercontinental hotels across Europe. The fund manager expects to book a loss of 90% on its $3.1bn European portfolio, with Germany accounting for the bulk of the figure.