Wall Street Journal

"While I won't go into a lot of detail, we are continuing to work with the lender" in negotiating the next course of action, Kelleher said. The Barclays non-recourse debt, originally due August 3, got a three-month extension. Citing unnamed sources, the Journal reported that Morgan Stanley also is considering other options, including an influx of capital to keep the investment afloat.

Morgan Stanley already has taken about $700 million in write-downs and other losses from the Crescent deal alone, the Journal reported. Year-to-date, the company has lost $2.1 billion on its real estate investments overall, with most of those losses occurring earlier in the year, according to Q3 financials.

One of the most active Wall Street banks in commercial real estate, where its current exposure totals about $6 billion, Morgan Stanley has been hit by setbacks in recent years. They include an investment in Charlotte, NC-based developer Crescent Resources, which filed for Chapter 11 in June, and Morgan Stanley's financing of the much-delayed Revel casino project in Atlantic City.

Since its $6.5-billion acquisition of Ft. Worth, TX-based Crescent Real Estate Equities in August 2007, Morgan Stanley has sold off some of the portfolio that at one time numbered 54 office, residential and resort properties. It still includes 17.5 million square feet of office in Houston, Dallas-Fort Worth, Las Vegas, Denver and Orange County, CA; residential assets in Colorado, Arizona and the Lake Tahoe region in California; and the Ritz-Carlton Dallas, the Fairmont Sonoma Mission Inn & Spa in Northern California and Canyon Ranch resorts in Lenox, MA and Tucson. An analyst quoted by the Journal said the properties' debt service coverage ratio has fallen from 2.5 in 2007 to 1.3 this year and will likely continue declining in 2010.

Nonetheless, Morgan Stanley's Q3 results surpassed expectations, as the company reported its first profit in a year, with net income of $757 million, or 38 cents per share, despite the real estate-related losses and a year-over-year decline in revenues from $18 billion to $8.7 billion. Analysts had expected the company's earnings per share to top off at about 30 cents, according to a Bloomberg survey.

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No Verdict on Morgan Stanley's Crescent Loan

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