Morgan Stanley Real Estate Investing (“MSREI”) announced the acquisition of a U.S. real estate loan portfolio with a principal balance of $196 million from an overseas company. MSREI is the global real estate investment management unit of Morgan Stanley (MS). The terms of the deal were not disclosed.
The unit of Morgan Stanley also stated that the loan portfolio comprised 45 assets with a blend of performing, sub-performing and nonperforming loans. The underlying assets consist of apartments, residential condominiums, industrial and residential land and offices. These properties are mainly located in Nevada, California, Washington, New Jersey and New York.
Morgan Stanley unit acquired the loan portfolio in partnership with Kearny Real Estate Company, a Los Angeles based firm. Kearny Real Estate had started as a unit of the Morgan Stanley Real Estate fund and was spun off in 2001.
Many banks sell their distressed and troubled real estate mortgages in order to get rid of these loss-making investments. Investors try to purchase these loans at a discount and often foreclose these principal properties for redevelopment or sale. Morgan Stanley seems to have acquired this real estate loan portfolio with a similar intention.
We believe the restructuring initiatives taken by Morgan Stanley to reduce balance sheet risk will improve its valuation over time. Moreover, its inorganic growth initiatives continue to be significant growth drivers. Nevertheless, the company is facing major headwinds to stay competitive and regain its industry-leading position.
Morgan Stanley currently retains its Zacks #5 Rank, which translates into a short-term Strong Sell rating. Also, considering the fundamentals, we maintain a long-term Underperform recommendation on the stock. The company’s closest competitor, Goldman Sachs Group Inc. (GS), retains a Zacks #3 Rank (a short-term Hold rating).
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