| TOKYO, April 15
TOKYO, April 15A Morgan Stanley property fund
failed to make $3.3 billion in debt payments by a deadline on
Friday, handing over the keys to a central Tokyo office building
to Blackstone and other investors, the largest repayment
failure of its kind in Japan.
It marks the latest fallout from a series of highly
leveraged investments by Morgan Stanley , one of the most
aggressive investors in worldwide property markets before the
global financial crisis.
The $4.2 billion MSREF V real estate fund missed its April
15 deadline to repay 278 billion yen($3.3 billion) worth of debt
packaged in commercial mortgage-backed securities on the
32-storey Shinagawa Grand Central Tower, a property which has
seen its value plunge, two people involved in the transaction
They spoke on condition of anonymity due to the sensitive
nature of the matter.
A Morgan Stanley spokeswoman in Tokyo declined to comment. A
New York based spokesman for Blackstone, which holds the most
junior portion of the debt and gains the right to market the
building for seven months, was not immediately available for
This is the largest repayment failure of debt
packaged in CMBS in Japan, according to analysts and industry
experts, bigger than the 112 billion yen that real estate
investor K.K. daVinci Holdings failed to pay on the Pacific
Century Place office building.
MSREF V bought the Shinagawa property for 140 billion yen in
2004 from Mitsubishi Corp and Mitsubishi Motors
. The building now houses Microsoft's Japan offices
among other tenants.
Morgan Stanley repackaged the loans into 125
billion yen worth of CMBS in 2005, according to a website for
Taking advantage of a run-up in property prices, MSREF V
refinanced its debt on the Shinagawa property in 2007 with new
debt worth 278 billion yen, twice the value of its purchase and
likely yielding a tidy profit for the fund.
The refinanced debt was sold in six different tranches by
Morgan Stanley to investors.
($1 = 83.510 Japanese Yen)
(Reporting by Junko Fujita; Editing by Edwina Gibbs and Nathan