Morgan Stanley Smith Barney, the wealth management arm of the investment bank, is preparing to launch a real estate investment trust that will primarily hold long-term net-leased assets.
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The firm filed a Form 10 with the Securities and Exchange Commission on Dec. 26 outlining its strategy for the nontraded REIT, to be called North Haven Net REIT. It will primarily focus on acquiring industrial, healthcare and retail assets but will also originate and acquire commercial loans.
The REIT will manage “a diversified portfolio of high-quality commercial real estate assets that are primarily long-term leased under net lease structures to tenants for whom the properties are mission critical, meaning essential to the continuance of their business operations,” according to the filing.
Industrial assets targeted by the fund will be focused on manufacturing, warehouse, distribution, and research and development facilities in “locations essential to or strategic for the tenant; and difficult, costly or disruptive to replace,” according to the filing, which was first reported by The DI Wire. The fund will focus on industrial assets “with appreciation potential, flexibility and attractiveness to other tenants,” primarily near major transportation thoroughfares and with strong labor pools.
The healthcare assets targeted by the fund will focus on medical office buildings and hospitals leased to regional physician practices or affiliated with major health systems as well as laboratories, urgent care facilities and service-oriented locations like dental facilities, dialysis centers and animal health service clinics.
The REIT’s retail assets will be focused on “eCommerce resistant industries where the presence of a physical location is important to the end consumer and mission critical to the tenant,” according to the filing.
The majority of its holdings are expected to be in net-leased assets, but the fund is also planning to originate first-mortgage loans with maturity rates generally ranging from three to five years and securities like real estate corporate credit, CMBS loans, and preferred stock in public REITs and other real estate companies.
The fund is targeting a 55% to 60% leverage ratio, and its debt holdings will be primarily secured by U.S. properties but could extend to other parts of North America and Europe.
“Seeking to generate attractive risk-adjusted returns, we will create a portfolio diversified across asset class, tenant industry, lease expiration and geography to attempt to mitigate credit risk concentration and volatility resulting from market conditions,” the filing says.
The REIT will have no dedicated staff and will be managed by MSREF Real Estate Advisor, a Morgan Stanley subsidiary that is part of its real estate investment platform.
It will be managed by a board of trustees that will have four members when it closes its initial private offering but could expand to as many as 15 members. The board currently has one member, Douglas Armer, who joined Morgan Stanley as a managing director in April after a 10-year stint at Blackstone, according to his LinkedIn profile.
MSREF operates through MSREI, the global real estate investment management arm of Morgan Stanley. MSREI had more than $200B in real estate assets as of June 30 and managed around $54B in assets on behalf of its clients. The bank’s overall investment platform had around $1.4T in total assets under management as of June 30.
Morgan Stanely’s launch of a nontraded REIT follows similar moves from other investment firms and comes as the real estate sector faces debt-related headwinds that portend discounted asset sales.
Dallas-based Invesco Real Estate launched a fund focused on residential, industrial and self-storage properties in July, the same month that investment management firm BentallGreenOak debuted an industrial-focused REIT. Sculptor Capital Management, ExchangeRight and EQT Exeter also announced funds last year, following a similar move from JPMorgan Chase to set up a REIT in 2022 that sought to raise as much as $1B.
Despite the spate of new offerings, nontraded REITs saw their fundraising precipitously decline in 2023, according to Robert A. Stanger & Co. data. The funds raised $9.8B through November, down from $33.2B in 2022, as redemptions surged, exceeding $17.4B through November compared to $12B the previous year.
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