Thursday, June 21, 2007

Goldman Raise $12 Billion for Property Funds

Bloomberg reports that upto quarter of the funds would be put to use in India and China. So if we do the math 69/12.5 = ~5.5 billion dollars for Indian real estate. What will these guys develop and how will it impact property prices in India is the billion dollar question ??

By Hui-yong Yu

June 20 (Bloomberg) -- Morgan Stanley and Goldman Sachs Group Inc. raised $12 billion for global real estate funds, tapping a surge in investor demand for high-return assets outside the U.S.

Morgan Stanley, the biggest real estate investor among Wall Street banks, said today it raised $8 billion to create the largest global property fund. Goldman drew $4.07 billion for a real estate fund, twice as much as it originally sought.

More than 100 real estate funds may raise a record $69 billion this year as investors seek better returns than stocks and bonds provide, according to Private Equity Intelligence Ltd. Morgan Stanley's high-return real estate funds have posted average annual gains of more than 20 percent since 1991, about twice the return of the Standard & Poor's 500 Index.

``There's clearly still significant capital out there,'' said Stephen Coyle, a managing director and head of Citigroup Real Estate Partners. ``Most funds are fully or oversubscribed today, especially those that have been in the game a long time.''

Rising interest rates in markets including the U.S., Europe, India and Japan, have yet to halt deal making, investors said.

``Borrowing costs are going up globally,'' Citigroup's Coyle said. ``That's creating what may be the first cracks in the market but capital is still seeking real estate and seeking it much more globally than in the U.S. for maybe the first time.''

Other Funds

Blackstone, the New York-based buyout firm set to go public this week, has raised more than $7 billion for its sixth worldwide real estate fund, a pool that investors expect will reach about $10 billion when it closes later this year.

Merrill Lynch & Co., the third-largest securities firm, also plans to raise funds for global real estate purchases, Co- President Ahmass Fakahany said today at a news conference in Dubai, United Arab Emirates.

Morgan Stanley will invest almost half of the money in Japan and about 25 percent in countries including China and India. The securities firm contributed ``just over 20 percent'' of the total equity in the fund and the rest came from institutional and retail investors, the New York-based company said in a statement today.

Morgan Stanley typically borrows $3 to $4 for every $1 raised to increase the funds' buying power and returns.

Goldman got the $4.07 billion for a new fund called Whitehall Street Global Real Estate LP 2007. The sum surpassed the 2005 Whitehall fund of $3.2 billion, according to Gia MorĂ³n, a spokeswoman for New York-based Goldman.

Focus on Asia

``The increase we've seen over the past two years has been enormous,'' said Tim Friedman, a spokesman for Private Equity Intelligence, noting that real estate funds raised just $21 billion as recently as 2004. ``A third of all funds being raised by Americans have some focus on Asia and everyone is looking to developing regions for deals that are more profitable.''

Morgan Stanley for the first time will charge 0.25 percent of the value of every acquisition its new fund makes. It's also taking a 20 percent cut of the fund's investment gains as an incentive fee, up from 17 percent previously.

Record fund inflows have allowed the best managers to charge higher fees and helped fuel takeover battles.

Goldman and Morgan Stanley are locked in a fight for two Italian real estate funds, Berenice Fondo Uffici and Tecla Fondo Uffici. Morgan Stanley and Pirelli & C. Real Estate SpA today increased their offer for the funds, trumping a June 18 bid of 782.4 million euros ($1.05 billion) by Goldman and its partner, Union Generale Immobiliare, a company controlled by Italian businessman Francesco Caltagirone.


Blackstone in February outbid Vornado Realty Trust to acquire billionaire Sam Zell's Equity Office Properties Trust for $39 billion including assumed debt in what was the largest real estate buyout.

Coyle said his current investment target is to put 65 percent of assets outside the U.S. and the rest within, the inverse of what it was two years ago as China and other economies grow faster.

``I don't think we're going to see a lot of other $8- to $10 billion funds,'' Coyle said. ``The whole real estate market is probably $20 trillion, soup to nuts.''

Morgan Stanley plans to invest almost half of its new fund in Japan, where the longest expansion since World War II is pushing up rents and creating a building boom in Tokyo. About 25 percent is destined for emerging markets including China and India.

Morgan Stanley

Morgan Stanley has been on an acquisition spree spanning offices, hotels and residential developers. The firm invested $12.5 billion in May alone, agreeing to buy Investa Property Group, Australia's biggest office owner, for A$4.7 billion ($3.9 billion), and Crescent Real Estate Equities Co. in the U.S. for $2.78 billion.

In April, Morgan Stanley agreed to buy 13 hotels in Japan from All Nippon Airways Co. for 281.3 billion yen ($2.4 billion) in what was Japan's largest real estate purchase by an overseas investor. Morgan Stanley also bought 10 hotels in Europe from Hilton Hotels Corp. for 566 million euros ($770 million), adding to its more than 80 hotels worldwide.

Also today, Morgan Stanley said second-quarter profit rose 40 percent, beating analysts' highest estimates, as gains from trading stocks and bonds and fees from investment banking helped the firm overcome a slump in demand for mortgage-related securities.

Morgan Stanley generated $2.9 billion from fixed income, which includes mortgages, even as rising delinquencies on the riskiest home loans curbed demand for mortgage-backed bonds. Goldman and Bear Stearns Cos., the largest underwriter of mortgage-backed securities in 2006, said last week that rising foreclosures reduced their earnings.

To contact the reporter on this story: Hui-yong Yu in Seattle at .

1 comment:

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