The new group, called direct investing, will comprise real estate, a new infrastructure fund and new private equity funds. It will be run by Jay Mantz and Stephen Trevor, according to an internal memo sent on Wednesday by the New York-based firm.

Morgan Stanley, with $45 billion (€34 million) in property assets, saw revenue from real estate investing, banking and lending surpass $1 billion for the first time in 2005, jumping 57% to eclipse equity underwriting. The firm stands to collect almost $500 million of fees in the next several years on a new $8 billion property fund it plans to close this year, before profits. „Morgan Stanley Real Estate Investing has experienced explosive growth from 1991 until now, with assets under management almost doubling in the last two years alone,” according to the memo, which was obtained by Bloomberg News.

Morgan Stanley spokeswoman Erica Platt confirmed the memo. She declined to comment further. Dow Jones Newswires reported the reorganization on Wednesday. The memo was sent by Morgan Stanley Co-Presidents Zoe Cruz and Robert Scully, investment banking chief Walid Chammah and Owen Thomas, president of Morgan Stanley Investment Management.

 

Mantz and Trevor, hired from Goldman Sachs Group Inc., will report to Thomas. Thomas ran Morgan Stanley’s real estate division from 2000 to 2005. Before the reorganization, real estate investing and banking were overseen by Mantz and John Carrafiell, reporting to Chammah. Now, Carrafiell and Sonny Kalsi will be co-heads of real estate investing. Kalsi previously was sole head of investing. He recently moved to New York from Tokyo after having led real estate in Asia.

Carrafiell is based in London. Morgan Stanley has raised ever-larger funds and increased fees as demand from pension funds to invest has grown and its strong returns give it clout to charge more. Thomas has been adding products such as hedge funds since he took over Morgan Stanley’s asset management unit in December 2005. His division oversaw about $478 billion as of November 30, 2006, and includes global equity, fixed income and alternative investments.

 

While Morgan Stanley’s grouping of real estate investing with banking and lending – a different structure from other Wall Street firms – meant the firm got early notice of potential investments and could arrange loans and complete deals quickly, pension fund consultants have warned investors that it also increased the risks of conflicts of interest.

Trevor, who began work at Morgan Stanley this month, and Alan Jones will head the private equity component of the direct investing group, the memo said. Jones previously was head of Morgan Stanley’s corporate finance department. Morgan Stanley later this year is scheduled to finish raising $8 billion for its newest global high-return real estate fund. The firm expanded into property investing in 1991 after the US savings and loan crisis, when the collapse of more than 1,000 thrifts that speculated on real estate forced the federal government to sell defaulted mortgages at discounts.

Since 1991, the firm’s real estate investments have produced annual returns averaging more than 20%. Morgan Stanley employs more than 700 people who work on real estate in 22 offices. Morgan Stanley also announced personnel changes in real estate banking. Hoke Slaughter will become chairman of real estate banking and together with Chris Niehaus will become a vice chairman of the investment banking division.

Guy Metcalfe and Struan Robertson will become global co-heads of real estate banking and Jonathan Lane will become chairman of real estate banking in Europe, the memo said. Morgan Stanley was first in advising in global real estate mergers and acquisitions in 2006 and first in arranging real estate initial public offerings and commercial mortgage-backed securities, according to the memo sent on Wednesday. Morgan Stanley shares rose $1.52 to $75.41 in New York Stock Exchange composite trading. (Bloomberg)