New Morgan Stanley Investment Fund to Have San Francisco on its Radar Screen

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By Jon Peterson

New York City-based Morgan Stanley Real Estate is planning to make an investment in the San Francisco Bay Area for its new commingled fund, Prime Plus Property Fund.

The real estate manager declined to comment when contacted for this story.

The new commingled fund will be focusing on investing properties that are located in the West and East Coast markets, according to sources that are aware of and are tracking the Prime Plus Property Fund.

Morgan Stanley does have a history of investing capital in the San Francisco market for its commingled funds. The real estate manager has three of its top 10 properties in its $14.6 billion Prime Property Fund located in the greater San Francisco Bay Area.

One of these is the Hills Plaza office complex in San Francisco. Morgan Stanley placed a gross asset value on this property at $445 million, through the first quarter of this year. Another San Francisco asset is the One Maritime Plaza office property. Its value is $435 million. The commingled fund also owns an office complex located at 3301-3307 Hillview Avenue in Palo Alto. This property is valued at $330 million, and it was acquired in the first quarter of this year.

Morgan Stanley has structured the Prime Plus Property Fund to be a core plus open-ended commingled fund. This means it will always be open for new capital commitments. This is different from a close-ended commingled fund, which has a specified amount of time where the capital raise takes place. The initial capital raise for the new commingled fund will likely be in the range of $400 million to $500 million, an amount that could be raised by the end of 2015. The long range goal is to make the fund much larger over the next couple of years.

The targeted returns for the commingled fund will be a 9.5 percent to 11 percent gross IRR. The leverage component in the fund is projected to be somewhere in the range of 30 percent to 40 percent. This puts it at the low end of the spectrum on leverage for core plus funds. Most core plus commingled funds of this type have leverage in the range of 50 percent, according to sources that track the commingled fund business.

Prime Plus Property Fund will look to own a diversified group of assets. It will focus on the four main property types of office, industrial, retail and apartments.

West Coast Commercial Real Estate News