Why Morgan Stanley is so fascinated by India's real estate

Morgan Stanley may invest actively in India next year and go for mezzanine deals instead of low-yielding deals and classical debt.

Morgan Stanley plans to invest in diversified real estate assets as it gears up to investing actively in Indian properties in 2015, said a person in the know of the global investment giant’s plans.

Morgan Stanley, which has invested about $800 million in Indian real estate since 2006, has not invested any funds in 2014. “Since they (Morgan Stanley) have raised $1 billion under its eighth global fund and are looking to raise similar amount under that fund, they are looking to invest actively in India next year,” the person added.

Morgan Stanely has $33 billion of real estate assets under management globally, of which 28 per cent is invested in Asia, 51 per cent in the Americas and the rest in Europe.

“They will look at residential projects, office assets and so on. But they are looking at more structured deals than pure equity deals,” said the person cited above.

When contacted, a Morgan Stanley spokesperson declined to comment.

Morgan Stanley is also in talks with its investee companies such as Pune-based Panchshil Realty and Sushil Mantri group of Bangalore, where it has entity level investments, to exit from these investments.

“Since IPO (initial public offering) markets are yet to pick up, they have to find some other options for the exit,” the person added.

Morgan Stanley has sold a three per cent stake in Mumbai-based listed developer Oberoi Realty, where it held a 10

per cent stake. It has also invested in Alpha G Corp’s project in Mumbai.

Interestingly, Morgan Stanley’s peer Blackstone, which has invested $1.5 billion in Indian properties, has focused mostly on buying office assets. Blackstone had bought DLF Ackruti IT Park in Pune, Express Towers in Mumbai, Ozone group’s residential project, 3C group’s IT SEZ among others.

Blackstone stayed away from Indian real estate between 2005 and 2008 when billions of dollars of funds came into Indian real estate, but started pouring in funds after 2008 in office and IT parks, making it the largest owner of office assets.

However, the person quoted above said Morgan has had a different strategy. “It makes sense to invest in office assets if you invest in multiple assets and exit through a Reit (real estate investment trust). But they did not have that plan of floating a Reit.”

Sanjay Dutt, managing director at property consultancy Cushman & Wakefield, says there is a difference between Blackstone and Morgan Stanley since the former is a fund and the latter is a bank and their investment strategies vary accordingly.

“All investment banks who shut or slowed down their real estate investments after the 2008 crisis are reconsidering their property investments. Not only Morgan Stanley, others like Goldman Sachs are also thinking about it,” said Dutt.

Amit Goenka, managing director and CEO of Nisus Finance Services (Nifco), said: “So far, Morgan Stanley has done classical private equity. Now they want to do mezzanine deals instead of doing low yielding deals and classical debt.”