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Excerpts: Morgan Stanley Realty touches real estate’s biggest deals

  • In fact, Morgan Stanley & Co. has been involved in the real estate industry longer than any other Wall Street-based investment banking firm, some 25 years. Today, the Morgan Stanley Realty team is part of a global company with offices in London, Hong Kong, Tokyo, New York, Los Angeles and San Francisco. But of course, its New York headquarters technically doesn’t even sit on Wall Street (MSR calls 1585 Broadway, a shiny, fullblock tower near Times Square, home).
  • MSR is divided into three divisions of Real Estate Investment Banking (Scott Kelley and Christopher Niehaus are co-heads), Commercial Mortgage Finance & Trading (John Westerfield is head), and The Morgan Stanley Real Estate Funds (Owen Thomas is director of acquisitions and member of the investment committee). William Lewis is a managing director of Morgan Stanley & Co. and head of MSR. He also is president and COO of the Morgan Stanley Real Estate Funds.
  • “We are the only full-service, fully integrated real estate investment bank on Wall Street,” says Lewis. “The world I would absolutely underline is integrated. We believe that we are the only firm where we all sit together on the same floor thinking about the business in an integrated fashion with our clients and investors as a focal point. We don’t think in terms of separate departments or separate divisions or separate responsibilities. At the end of the day, we do think that having that integrated approach to deliver the best solution possible to our clients or to our investors really puts us in a unique position.”
  • “Morgan Stanley is one of the dominant firms in the mergers and acquisitions business, generally speaking, apart from the real estate sector,” says Scott Kelley, managing director in Real Estate Investment Banking. “And we’ve been able to import a lot of that expertise and that extensive knowledge base to real estate situations. This gives us a real leg up on other firms in providing the right advice to real estate clients.”
  • Perhaps the hottest phenomenon brought to the real estate markets in recent years is the securitization of commercial real estate, including the issue of pooled commercial mortgage-backed securities (CMBS). Even here, MSR finished last year as the No. 2 underwriter of CMBS issues.
  • “We’ll be in the top five,” says John Westerfield, managing director of Commercial Mortgage Finance & Trading. “The market is red-hot. 1996 will be a record year in terms of new volume in the marketplace and it will be a record year for us in terms of the number of transactions we’ve done, the amount of capital we’ve committed and the amount of total debt we’ve placed.”
  • “People come to us because we’ve been able to achieve very aggressive execution levels in terms of pricing for clients in the marketplace,” says Westerfield. “We’ve been aggressive with our capital and we have a very integrated team that has a smooth approach between fixed-income and real estate finance.”
  • Another popular rage has been the opportunity funds which have poured billions of dollars into real estate in the last five years. And again, MSR was there early in the game with one of the first Wall Street opportunity funds, which it created in 1991.
  • So why was it an early entrant? “At the time we believed that there were tremendous opportunities to make principal investments in real estate,” says Owen Thomas. “And we created that fund to focus on the market at that point in the real estate cycle.”
  • The timing was good. MSR has acquired nearly $4 billion in assets through 23 investments, and its MSREF II, with nearly $1.5 billion of committed equity capital, is one of the largest funds of its kind. Major MSREF investments include Red Roof Inns, the purchase of loans and properties from BankAmerica Corp., and the acquisition of a 15-building office portfolio from Sears in partnership with Hines Interests.
  • [The Doubletree/Red Lion merger] is the most recent example of what we call one-stop shopping. A lot of people are talking about it, but as best we can tell, we’re the only firm – and this transcends real estate – that has truly put in place a one-stop shopping transaction. We’re certainly the only firm where both sides of the deal have asked for Morgan Stanley’s assistance,” says Lewis.
  • MSR was representing Kohlberg Kravis Roberts (KKR) in its effort to sell Red Lion Hotels. “Our recommendation was that Doubletree was the best company to do this deal. KKR then asked us to assist Doubletree in the financing. We provided the M&A advice to Doubletree, we provided the senior financing to Doubletree, we provided a bridge loan to Doubletree, we provided a backup high-yield financing to Doubletree and we’re in the process of doing the equity offering for Doubletree,” says Lewis.

Source: National Real Estate Investor