Morgan Stanley To Buy Glenborough for $840 Million

Morgan Stanley, the world’s biggest securities firm by market value, agreed to acquire Glenborough Realty Trust for about $840 million in cash, giving it office properties from Boston to California.Morgan Stanley Real Estate funds will pay $26 for each Glenborough share, 8.2% more than the closing price of $24.03 on August 18, the two companies said today in a statement. Including debt, the purchase price is $1.9 billion, they said.Investors in Morgan Stanley funds are “very hungry for good properties in valuable areas and this is an opportunity for them,”said David Loeb, senior research analyst and managing director at Robert W. Baird & Co.The purchase gives Morgan Stanley’s real estate unit, which manages $50.9 billion of client assets, 45 properties with about 8 million square feet of space. The New York-based firm has almost doubled its real estate assets since 2004, when it led a group of investors that bought London’s Canary Wharf Group Plc for $3.1 billion. Morgan Stanley agreed August 9 to buy mortgage lender Saxon Capital Inc. for $706 million.Takeovers of real estate investment trusts that specialize in owning office buildings are increasing as office rents and occupancies rise across the country. Brookfield Properties Corp. and Blackstone Group LP in June agreed to buy Trizec Properties Inc. for $8.9 billion, the second-largest takeover of a REIT. Acquisitions of American REITs have soared 72% to $43.4 billion this year from $25.2 billion in the same period last year, according to data compiled by Bloomberg.Whitehall Street Real Estate Funds, part of Goldman Sachs Group Inc., the most profitable American investment company, manage “more than $30 billion of real estate assets,” according to Andrea Raphael, a spokeswoman for the New York-based firm.Glenborough, based in San Mateo, California, is a real estate investment trust that owns multi-tenant offices concentrated in Washington, California, Boston, and New Jersey. It owned 45 properties with about 8 million square feet of space at the end of the second quarter.“Glenborough’s high-quality office properties are located in some of the country’s most desirable and supply-constrained office markets, such as Washington, D.C., and Northern and Southern California,” the managing director of Morgan Stanley Real Estate, Michael Franco, said in the statement.Washington has the second-highest office rents in the second quarter, after Midtown Manhattan, at $42.59 a square foot, according to New York-based real estate services provider Cushman & Wakefield. Orange County, California, where Glenborough has buildings, had one of the nation’s lowest vacancy rates at 9.3%, below the U.S.average of 11.9%.Glenborough shares rose $1.94, or 8.1%, to $25.97 as of 4 p.m. in New York Stock Exchange composite trading after trading as high as $26.25 earlier.The shares have gained 44% this year, more than the 25% increase in the Bloomberg REIT Office Property Index. The closing price on August 18 valued Glenborough at $775 million.Morgan Stanley Real Estate spokeswoman Alyson D’Ambrisi declined to give details of the purchase price before the acquisition is completed. The purchase, which must be approved by Glenborough shareholders, likely will be completed in the fourth quarter, the companies said.Glenborough Chief Financial Officer Brian S. Peay didn’t return telephone calls seeking comment.Mr. Loeb today cut his recommendation on Glenborough’s shares to “neutral” from “outperform,” saying in a note to investors that he expects the “stock trade in the $26 range until the offer closes.”Sales of American office buildings, retail space, industrial sites and rental apartments rose 14% in the first half to $155 billion, according to Real Capital Analytics Inc., a property research firm in New York. That compared with a 62% rise in the first half in 2005.American office occupancies and rents rose to an almost five-year high in the second quarter as the nation’s unemployment rate remained at an almost five-year low.Over the past five years, Glenborough has concentrated its holdings into mostly office space in coastal markets. Its properties now include 5.7 million square feet of office space, about 1.2 million square feet of industrial space, and about 1.4 million square feet of space held in joint ventures. Its holdings also include land near the Denver International Airport, which could be developed for retail, Mr. Loeb said.

Morgan Stanley To Buy Glenborough for $840 Million

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