Morgan Stanley is expected to offer Investa Office Fund the option to acquire the rights to its management platform in a move aimed at mollifying the fund’s board after negotiations to internalise the vehicle earlier in the year collapsed.
The move comes as the bank attempts to extricate itself from Investa Office’s parent, the $8.9 billion real estate empire that was purchased at the peak of the last credit bubble.
Morgan Stanley’s real estate fund MSREFVI, which controls Investa, recently sold a portfolio of skyscrapers held by the group to the Chinese Investment Corporation in a deal worth $2.45bn.
However the bank and its advisers, UBS, are now in the midst of difficult discussions to sell the managment platform, that oversees three main segments; the now CIC-owned portfolio, Investa Office and its unlisted, and fiercely coveted stablemate, ICPF.
According to sources, Investa Office’s board recently contacted Morgan Stanley requesting another opportunity to negotiate the possibility of an internalisation.
A prior effort to sell the management rights flopped after the bank’s offer to take over the management rights for close to $135m was rejected amid concerns the deal would be trumped by a higher bidder. While Morgan Stanley had pledged a profit share arrangement in this scenario, sources said Investa Office’s board was nervous about waiving its pre-emptive rights to 50 per cent of its management entity without the reassurance of a written commitment.
For Investa Office, the sole remaining pure-office trust left in the listed sector, this meant ceding full control to Morgan Stanley.
Others however argue the board made a serious miscalculation.
The value in Investa’s management platform hinges upon all three components - the portfolio, ICPF and Investa Office — remaining together. If Investa Office had secured the backing of ICPF, and then agreed to sign up to Morgan Stanley’s proposal on the proviso that a reversal would trigger a break-up of the organisation, all parties would have been motivated to stick to the original agreement.
Sources said Morgan Stanley is also keen to preserve its reputation and would not have reneged on the loosely structured deal.
If Investa Office wants to pursue an internalisation its investors may have to stump up an unpalatably large sum to see off rival contenders for the platform, La Salle Invement Management and Mirvac Group.
This article first appeared in The Australian Business Review.