Morgan Stanley set to book $5.4 bn property loss

Morgan Stanley has warned investors that its $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 today by the Wall Street Journal, is 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.

Earlier this year, Morgan Stanley was forced to hand its EUR 2.1 bn Pegasus portfolio of German office buildings back to the lender, Royal Bank of Scotland Group. According to the fund's third-quarter report, it is now poised to hand back two pan-European hotel portfolios. These include an $800 mln portfolio of 10 European hotels, including Hiltons, to lender Barclays Capital as well as a portfolio of Intercontinental hotels it acquired for $873 mln in 2006 in a string of European cities including Amsterdam, Budapest, Cannes, Frankfurt, Madrid, Rome and Vienna.

Meanwhile Morgan Stanley is currently engaged in raising funds for its new MSREF VII Global. Earlier this year, Morgan Stanley Real Estate Investing (MSREI) announced it had teamed up with AIM-listed NewRiver Retail to form a co-investment joint venture to acquire UK retail property assets. The fund will have an acquisition capacity in excess of £250 mln (about EUR 278 mln), including leverage. According to well-informed sources, the venture is part of the MSREV VII fund. Sources say the new global fund is likely to be on a similar scale to MSREF V which had a firepower of some $4 bn. That figure would represent a significant decline to its original target. According to the WSJ, Morgan Stanley had sought to raise $10 bn for the fund.

News of the mega-losses coincide with the appointment of Olivier de Poulpiquet as the new European head of Morgan Stanley Real Estate Investing.

Click on the link below to read 'De Poulpiquet rejoins Morgan Stanley'