Morgan Stanley has won a one-year investment period extension for its $4.7bn (£3bn) mega-fund after agreeing a compromise with investors.
Sources close to the US private equity fund said that Morgan Stanley Real Estate Fund VII’s largest shareholders had approved the move in a final vote following initial discussions in December.
As part of the agreement, Morgan Stanley is to return around $700m of unspent equity to investors – bringing the size of the fund down to $4bn – and is also reported to have slashed its fee structure.
The extension will give the New York-based investment manager until June 2013 to find new deals for the vehicle.
It has so far deployed just €2.5bn of equity in deals including a portfolio of retail buildings in Germany and a €150m (£124m) mezzanine loan for a European luxury hotel owner controlled by a Blackstone vehicle.
It also has purchased a shopping mall in St Petersburg, Russia, and a portfolio of distressed loans in Australia.
MSREF VII closed fundraising in June 2010, raising less than half the $10bn target it had before the financial crisis.
The sign-off comes at the same time as an Estates Gazette opportunity funds survey found that just two of a total of 35 vehicles launched since the onset of the credit crunch in 2007 have invested their entire equity raising ahead of investment period deadlines.
Rockspring’s UK Value Fund had spent its entire £336m by June 2010 and Threadneedle also successfully invested its 2008 UK Opportunities Fund.
Morgan Stanley was one of three investment managers, alongside Palmer Capital, known to have negotiated an extension of their investment period in order to avoid having to return unspent cash to investors.
Based on an average investment period of three years, a further four funds could face deadlines in the next 12 months.
