Morgan Stanley Real Estate Pitch

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Discussion Materials
19 February 2009
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UNC Kenan-Flagler Annual Real Estate Conference
Morgan Stanley Real Estate Global Platform
Sydney
Morgan Stanley Real Estate 
Global Platform
UNC Kenan-Flagler Annual 
Real Estate Conference
2
Morgan Stanley Investment Banking Offices
Morgan Stanley Real Estate Offices
Menlo Park
San Francisco
Chicago
New York
Houston
Paris
Madrid
Dublin
Stockholm
Frankfurt
Milan
Johannesburg
New Delhi
Bangkok
Melbourne
Taipei
Shanghai
Beijing
Seoul Tokyo
Hong Kong
Buenos Aires
Atlanta
Boston
Mumbai
Los Angeles
• Leading global real estate 
investment manager with 
$91Bn in real estate assets 
under management(RE AUM)
– America ($36Bn), Europe 
($29Bn) and Asia ($26Bn)
– Core, value-added and 
opportunistic investment 
vehicles
• Industry leading global real 
estate investment banking 
franchise
– Intermediated $400Bn in real 
estate M&A transactions over 
past decade
– Public debt, preferred and 
equity underwriting
Number of Offices 22 
Number of Professionals 815(1)
Moscow
Mexico City
São Paulo
Singapore
Toronto
Dubai
London
Countries with Morgan Stanley Hotel Investments
Note
1. Includes banking and investing professionals as well as Financial Controllers, IT, Legal and administrative staff who fully support the real estate 
investing business as of November 30th
Munich
Unprecedented Financial and Economic Times
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Notes
1. Asset writedowns and credit losses; Bloomberg as of February 13, 2009
2. FactSet aggregate market value calculations from October 2007 to February 12, 2009
• Since September 2008:
– Conservatorship of Fannie 
Mae and Freddie Mac
– Bankruptcy of Lehman 
Brothers
– Sale of Merrill Lynch, 
Wachovia and Washington 
Mutual
– Collapse of AIG
– Failure of numerous other 
financial institutions
– Unparalleled global 
government intervention
$1.1 Trillion Financial Sector Writedowns (1)
Banks: $825Bn / Insurance: $165 Bn / GSEs: 
$114Bn
Americas: $758Bn / Europe: $315Bn / Asia: 
$31Bn
Market capitalization of equity markets has 
declined significantly (2):
• World: $59Tr to $28Tr (53% decline)
• US: $19Tr to $10Tr (47% decline)
• Europe: $18Tr to $8Tr (56% decline)
• Asia: $17Tr to $8Tr (53% decline)
The Casualties The Vicious Cycle
1. Losses on Leveraged Borrowing
2. Deterioration in Credit Quality
3. MTMs/Losses in Financials
4. De–leveraging / Reduction in Credit 
Availability
5. Asset Price Declines
6. Impact on the Real Economy
7. Repeat step 1
450
550
650
750
850
950
1,050
Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09
FTSE EPRA/NAREIT Japan
Japan(1)
Index Price Performance since April 18, 2008
Select Real Estate Public Market Declines
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Note
1. Index data first made available in April 2008
• Since January 1, 2008, global 
public real estate markets have 
declined
– US: (60.5%)
– Japan: (41.8%)
– Europe: (56.5%)
• The primary Chinese equity 
index for domestic securities, 
the China A Share index, has 
declined (54.3%)
• The public market decline price 
in significant cap rate 
expansion and weakening 
fundamentals
Source FactSet as of February 17, 2009
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Feb-09
FTSE EPRA/NAREIT Europe
Europe
Index Price Performance since January 1, 2008
300
400
500
600
700
800
900
1,000
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Feb-09
MSCI US REIT Index
U.S.
Index Price Performance since January 1, 2008
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Feb-09
China A-Share Index
China A-Shares Index
Index Price Performance since January 1, 2008
10
20
30
40
50
60
70
80
90
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Feb-09
Stress in All Corners of the Market
UNC Kenan-Flagler Annual 
Real Estate Conference
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(8.0)%
(6.0)%
(4.0)%
(2.0)%
0.0%
2.0%
4.0%
Jan-07 May-07 Sep-07 Jan-08 May-08 Nov-08 Jan-09
20
40
60
80
100
120
140
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Feb-09
GSCI Commodity Index
40
50
60
70
80
90
100
110
Dec-07 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Feb-09
Hedge Fund Performance
Credit Suisse Tremont Hedge Fund Index (Monthly Returns)
%
Source FactSet as of February 17, 2009 Source HedgeFundIndex.com as of February 17, 2009
Commodities
Indexed to 100
Emerging Markets Index
MSCI Emerging Markets Index
Indexed to 100
Source Bloomberg as of February 17, 2009 Source FactSet as of February 17, 2009
Volatility
CBOE Volatility Index of S&P 500
• Commodities down 59% from 
one year ago as of February 
17, 2009
• Emerging Market Equities 
down 48% from one year ago 
as of February 17, 2009
• The credit crisis remains intense and has 
resulted in a dramatic re-pricing of risk
• Lack of credit/financing 
– Scarcity of capital
– Less flexible debt; lower LTVs, 
conforming DSCR
• All asset classes have been impaired
– Cap rates significantly wider
– Real estate yields are at historic lows 
versus corporate bond yields; reversion 
to historical norms would require a real 
estate price decline of 25%
• Declining operations/fundamentals
– Global recession is slowing rent 
growth and vacancies are projected to 
rise with corporate bankruptcies and 
unemployment
• Wholesale vs. retail pricing
• Big spreads between (i) stabilized vs. 
opportunistic assets and (ii) prime vs. 
secondary availability
Environment
Summary of Real Estate Environment and Opportunities
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• We expect the best distressed / 
opportunistic environment we 
have seen since the early 90s
• Distressed opportunities 
globally will come from:
– Failed / stressed financial 
institutions that will be forced 
sellers
– Corporate restructurings and 
non-core asset sales to 
generate liquidity and solidify 
balance sheets
– Public real estate companies 
needing to deleverage
– Overleveraged borrowers 
and bank debt sales
• Timing of market stabilization is 
still unclear – need to be 
patient and not enter the 
market prematurely
• Distressed situations
– Lender driven
– Borrower driven
• Corporate restructurings
– Focus on core businesses
– Sale-leasebacks on occupational real 
estate
• Real estate company distress
– Bankruptcies
– Growth capital
• Currently, credit opportunities appear more 
favorable than equity opportunities
Opportunities
Institutional Investor Approach to Real Estate
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• Existing portfolios are 
concentrated in core 
investments
• However, new investments are 
heavily skewed to value added 
and opportunistic
– Investors are likely 
anticipating that near-term 
vintage years will be strong 
ones, due to current distress
• Real estate averages 10% of 
Plan Sponsor target allocations
• Expected real estate 
commitments are down 31% 
from 2008
Notes
1. For US Plan Sponsors Opportunistic investing seeks the highest returns, typically 20% or more, and uses the highest proportion of debt, sometimes reaching 80% or more. 
Core investing seeks the lowest risk and often targets the NCREIF benchmark, which has historical average returns in the 8%–10% range. Core investing typically uses debt 
between 0% and 40%. Value-Added investing falls between core and opportunistic, seeking returns that typically range between 11% and 17%
2. Excludes a category called “Other”, which represents 3%
Opportunistic 
(US)
19%
Foreign 
Investment
3%
Value-Added 
(US)
18%Core (US)
51%
REIT
9%
Existing Allocation by Risk Preference(1)
Source 2009 Plan Sponsor Survey, Kingsley Associates
Core
16%
REITS
1%
Foreign 
Investment
14%
Opportuistic 
(US)
35%
Value-Added 
(US)34%
Expected New Allocations by Risk Preference(1,2)
Sources IREN, Kingsley Associates
Existing Allocation to
Non-Core
49%
New Allocation to
Non-Core
84%
59
46
6059
71
42
29
0
10
20
30
40
50
60
70
80
2006 2007 2008 2009
Actual Capital Flows Expected Capital Flows
Real Estate Capital Flows
($Bn)
Source 2009 Plan Sponsor Survey, Kingsley Associates