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NEW YORK CITY-Morgan Stanley intends to buy most of Lend Lease Corp.’s US real estate investment business, adding about $13 billion in property assets under management. The New York-based investment bank, which did not disclose terms of the transaction, says it expects to have more than $30 billion of real estate assets under management when the deal is completed. Morgan Stanley will integrate the business under the Morgan Stanley name, assuming full operational control. The news comes just as another piece of the Lend Lease puzzle–Holliday Fenoglio’s buyout by management–is confirmed.

The parts of the equity advisory business included in the transaction are all separate account mandates and commingled funds including the Prime Property Fund, but excluding the Value Enhancement Funds, Rosen Consulting Group and Lend Lease Rosen Real Estate Securities. The $2.6 billion Prime Property Fund, formed in 1973, has a geographically diversified portfolio of office buildings, shopping centers, industrial properties, apartments and hotels.

The Lend Lease Rosen Real Estate Securities LLC affiliate manages $1.6 billion in separate accounts and commingled funds. Lend Lease Rosen advises Lend Lease Real Estate Investments on its REIT investments for its own funds and client portfolios, and is Lend Lease’s exclusive REIT management firm. Rosen Consulting is a California-based real estate and regional economics research and consulting firm. Value Enhancement Funds II and III are in a series of four closed-end, enhanced return real estate investment funds designed to take advantage of inefficiencies at varying stages in the real estate cycle. Since the inception of VEF I in 1993, the series of funds has found value in almost $2 billion in commercial real estate throughout the US.

“We are retaining ownership of Rosen Consulting Group and Lend Lease Rosen Real Estate Securities, as well as the management of the VEF series of funds, says Lend Lease Group CEO Greg Clarke. “We will continue with a review of options for these businesses.”

In addition, the transaction includes the management of the Lend Lease US Office Trust. Lend Lease tells investors that the sale does not affect the assets of the Trust, which are held by the Trustee on behalf of the Trust’s Unitholders. The Trust will continue to be listed on the ASX, will continue to own the same properties and will have the same partners.

E. Davisson Hardman, a senior member of Morgan’s real estate investment team with 25 years of experience, will run the expanded US business. “The combination of Lend Lease’s US REI business and Morgan Stanley will create unique real estate capabilities,” he says.

Morgan Stanley Australia CEO Steve Harker adds, “This transaction significantly enhances our product capability and presence in Australia, and we are committed to building the Trust’s market position and performance.”

Prior to the announcement, representatives of the Trustee and Morgan Stanley met to review how the Trust would be operated under Morgan Stanley’s ownership of the Trustee. Commenting on these discussions, Ian Smith, fund manager and director says, “We believe the transaction will be beneficial to Unitholders as the Trust is integrated into Morgan Stanley’s worldwide management platform and gains the benefit of Morgan Stanley’s extensive network.”

The agreement between Lend Lease Corporation and Morgan Stanley remains subject to certain closing conditions. In the interim, Lend Lease remains the ultimate owner of the Trustee.

Lend Lease’s Clarke says the agreement allows Lend Lease to exit the majority of the US equity advisory business in accordance with the strategy announced in late May. “Importantly the transaction allows us to minimize any further exposure to this business.” The financial outcome of the transaction was within Lend Lease’s expectations, which were reflected in the recently announced write-down of Lend Lease’s Real Estate Investments businesses. In the event that the transaction is not completed, the write-downs previously announced allow for any additional costs that may be required to pursue further options in relation to these businesses.

Lend Lease will now focus on developing businesses including Asia Pacific, Bovis Lend Lease and Actus Lend Lease. The company noted this sale will allow it to focus on its core businesses, which include developing and investing in Australian properties.

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