Morgan Stanley Has Raised $2.3B For A New Fund, Cementing Its Real Estate Comeback
Investment bank Morgan Stanley has raised $2.3B for a new real estate fund this year and is still raising new capital as it builds up a war chest that could support it spending more than $5B in the sector.
According to documents filed with the Securities and Exchange Commission earlier this month, Morgan Stanley has completed a fourth equity raise, of $300M, for North Haven Real Estate Fund IX Global, its ninth real estate opportunity fund.
Morgan Stanley began raising capital in November last year. Even with conservative leverage of around 50%, that will give it around $5B to spend on real estate globally. The $2.3B raised puts it back toward the upper echelons of real estate opportunity fund managers, and suggests it has put a tumultuous period in the real estate sector behind it. Morgan Stanley declined to comment on the fundraising.
North Haven IX is the second-largest fund raised this year, according to data from Preqin. The $9B raised by Blackstone for its fifth European fund is the largest.
The fund has already surpassed the $1.7B raised in 2015 by Morgan Stanley for its previous fund, North Haven Real Estate Fund VIII Global. That fund invested in U.K. logistics and Australian offices, among other real estate.
Morgan Stanley has rebuilt its opportunity funds business after a period as one of the highest-profile casualties of the credit crunch, where its highly leveraged deals were hit by the fall in real estate values.
In many ways its story is the same as that of Goldman Sachs, which suffered similar value falls in its real estate opportunity funds but has since raised further capital to deploy in the sector.
Also like Goldman it has rebranded its real estate funds — Goldman changed the name of its fund series from Whitehall to Broad Street, and Morgan Stanley changed its funds from MSREF to North Haven, the name of the town in Maine where the firm’s original partners met and formed the bank in the 1930s.
As well as a rebrand, the name change was partly because of the Volcker Rule, which said banks cannot put their name on funds. It also does not allow banks to put as much of their own money into funds that invest in real estate. As a result of this rule Goldman changed its funds’ strategy to provide real estate debt, but Morgan Stanley has continued to invest directly in real estate and reduced the amount it co-invests.
Morgan Stanley has been working to improve its returns this cycle and regain investor trust. Its sixth fund, raised in 2006 and investing at the worst time possible, made a return of around -16%, according to filings from one of its investors, the Pennsylvania Public School Employees Retirement System. But it did not lose all of its investors' money, as was predicted in 2010.
Its seventh fund, which began raising and spending money in 2007, is on track to make an 11% internal rate of return and a 1.34x multiple on invested capital, according to another investor, the New Mexico Public Employees Retirement Association.
This puts it broadly in line with funds raised at a similar time by firms like Blackstone and Starwood. There is no data yet available for North Haven VIII.
With $2.3B already raised and more to go, Morgan Stanley is firmly back in the affections of investors who once predicted its demise as a force in real estate investment.
