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Morgan Stanley in emerging Europe developer deal

The real estate arm of Morgan Stanley has invested some of its $2.2 billion Special Situations Fund III to acquire shares in developer Adama in an effort to access the markets of Romania, Ukraine and Turkey.

Morgan Stanley Real Estate has invested its $2.2 billion Special Situations Fund III to buy shares in east European developer Adama Holding Public Ltd.

Financial details were not disclosed but New York-based Morgan Stanley said in a statement it participated in a private placement with existing Adama shareholders, Lehman Brothers and Vienna-based real estate investment company Immoeast, in a deal worth more than €100 million ($153.6 million).

The deal is part of a trend whereby private equity real estate firms have been investing in development companies to access opportunities in the emerging markets.

The majority of the investment will be used to fuel Adama’s growth in its core markets of Romania, Ukraine and Turkey, with John Carrafiell, global co-head of Morgan Stanley's property investment business, saying the countries involved were “exciting new markets.”

“We believe that Romania’s strong demand for quality real estate provides an attractive opportunity to expand our investment platform in Central and Eastern Europe,” Carrafiell added in a statement.

Morgan Stanley’s Special Situations Fund III closed in 2006 with $2.2 billion in commitments. The fund, which makes non-controlling, minority investments in public and private real estate companies, is focused on the emerging markets and has already made investments in India and Russia.

Bucharest-based real estate company Adama currently has a portfolio of 51 development projects, involving more than 2.5 million square meters of construction. Most of it is geared towards rising demand for middle-class residential developments.

David Flusberg, president and co-founder of Adama, said the deal was the fourth private placement for Adama in almost three years and would help them expand “high-return development projects across target markets.”