The sales process for the $9 billion Morgan Stanley-owned Investa real estate platform has been locked in for the first half of this year, according to sources.
Now the race is on for investment banks to land an advisory role with one of the potential buyers, ahead of what is shaping up to be the biggest deal in the property sector for some time. It’s understood that Macquarie Capital is almost a certainty to be adviser for Investa Office Fund, which has $3.1bn worth of assets, while UBS and Morgan Stanley will act for the unlisted Investa interests.
These include a wholesale fund worth almost $3bn and an additional $3.5bn worth of property on its balance sheet, comprising mainly landmark offices in major cities, but also some land for residential development.
IOF may want to buy the management rights of its own fund or the broader Investa platform, which means Morgan Stanley is unable to act for IOF due to perceived conflicts of interests.
However, the deal is likely to generate lucrative fees for banks across the board in the space, as was the case when Commonwealth Bank cut ties with the management of its $17bn property platform. The bank’s decision, made in 2013, triggered a battle for the $3bn Commonwealth Property Office Fund between the GPT Group and the Dexus Property Group and Canadian Pension Plan Investment Board consortium, which wound up as the successful suitors.
CBA used Goldman Sachs as its adviser, while the bank’s funds management arm, Colonial First State, was represented by UBS.
Dexus is likely to take a look at Investa, which could see the group draft in investment banks Citi, JPMorgan or Deutsche, the three it used in the CPOF transaction.
The GPT Group could sound out the business, calling on the help of Bank of America Merrill Lynch, while Blackstone is a logical suitor, as is Charter Hall. Fort Street’s experienced real estate banking team headed by Richard Hunt is also likely to be in the corner of one of the suitors.
An interesting question is how the process will play out with respect to the involvement of wholesale funds such as Australian Super and the Future Fund.
In the Colonial deal, CPPIB, which used Macquarie as adviser, secured exposure to the portfolio through a partnership with Dexus, while GPT’s wholesale fund provided firepower for its tilt.
Some are sceptical as to whether the Investa Office Fund will in fact be sold, with the cynics saying the process could see a so-called “stalking horse” offer emerge to establish the price that the listed group would need to pay for its management rights. Complicating matters is the joint venture ownership structure of various landmark towers Investa owns, such as Sydney’s Deutsche Bank Place and the Telstra headquarters in Melbourne’s Exhibition Street.
Morgan Stanley bought Investa at the peak of the property market in 2007 for $4.7bn, holding the business in its MSREF VI fund, one that controls a 20 per cent stake in the publicly listed IOF.
The only other sizeable deal keeping bankers busy is the selldown of Leighton’s assets, being handled by Bank of America Merrill Lynch and the listed residential developer it backs, Devine, for which Goldman Sachs is running the sales process.
This article first appeared in The Australian Business Review.