HONG KONG/NEW YORK (Reuters) - Morgan Stanley (MS.N) is close to raising $6 billion for a new global property fund, falling short of its earlier target of $10 billion, sources with direct knowledge of the plan said on Tuesday.
The bank reduced its fundraising target late last year due to the poor global market environment, while fundraising for the new real estate fund is expected to be completed soon, said the sources, who declined to be identified as they were not authorized to speak to the media.
Morgan Stanley had managed to secure a key investment for the new fund with a $800 million commitment from Beijing-based China Investment Corp (CIC), according to one source with direct knowledge of the deal.
CIC, China’s $200 billion sovereign wealth fund, holds a stake in Morgan Stanley.
A Morgan Stanley spokesman declined to comment. A CIC representative could not immediately be reached for comment.
The Morgan Stanley Real Estate Fund VII Global, the latest in the Wall Street bank’s series of international property investment funds, began raising money from institutional investors in early 2008.
Reuters on Monday reported U.S. private equity firm the Carlyle Group CYL.UL was raising its second Asia real estate fund with a target of $1 billion, aiming to tap into more property deals in key markets such as China and Japan.
“I think these new real estate funds will look for distressed opportunities and they think they can bargain with developers who mismanage the balance sheets or have liquidity issues,” said Laure Wang, managing director of Asia Alternatives, a private equity fund of funds.
Property markets around the world are falling as the global financial crisis deepens.
With banks cutting their exposure to property, landlords in Japan, China, India, Australia and other countries could be forced into fire sales if they fail to refinance loans, putting more properties on the market and driving valuations down further.
The downturn in global property markets will create a vintage period of strong returns for funds with cash to invest in the next two years, Paul Vosper, chief operating officer for real estate at Morgan Stanley’s Alternative Investment Partners unit, told Reuters in early March.
Meanwhile, competition for good and cheap properties may be easing as many hedge funds, which had dabbled in Asian property, recoil from the market having struggled to get more capital.
CIC is shifting its investment focus to natural resources, fixed income and real estate after it made losing bets on U.S. financial stocks including Morgan Stanley and Blackstone Group (BX.N), people familiar with its strategy told Reuters last month.
“CIC is among one of these early birds for their commitments to the new Morgan Stanley fund,” said one of the sources, adding CIC may also make some direct investments in global property sectors.
Morgan Stanley, one of the world’s biggest property fund managers, has faced growing challenges lately in Asia after aggressive investment expansions in the past few years.
In China, Garth Peterson, former China head of Morgan Stanley’s property investment arm, was fired by the bank for suspected violations of the U.S. Foreign Corrupt Practices Act and is being investigated by the U.S. regulators, Reuters reported last month.
Editing by David Holmes