April 13, 2010
Morgan Stanley Real Estate Fund VI has disclosed to investors that they are facing losses of nearly two-thirds of their investment. That translates to roughly $5.4B of losses on the massive $8.8B fund.
The article in the WSJ runs through most of the juicy tidbits. The losses are so staggering that the entire premise of the fund seems to have been based on nothing more than fee generation which we’ve discussed at length before. Unfortunately though, Morgan has provided significant guarantees on many of these deals underscoring the fact that they were completely blindsided.
When times were good, the fund generated fat fees for various segments of the bank. In 2007 alone, Morgan Stanley earned $104 million in acquisition fees, $22 million in fund-management fees, $13 million in financing fees, $36 million in real-estate-management fees, and $21 million in financial-advisory fees, according to fund documents reviewed by the Journal.
Unfortunately, this is not new news. Nearly a year ago MSREF came out and told investors that marking-to-market, the losses would be north of 50%. This news is just the latest icing on the MSREF fruitcake. Other MSREF funds also faced steep losses after deals such as the CNL, Glenborough, and EOP portfolio acquisitions all went sideways.
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