Reversal of Spinoff Could be Right Move for NorthStar

A NorthStar Realty Finance special committee has retained UBS Investment Bank to explore “a potential recombination transaction" with NorthStar Asset Management Group.

By Scott Baltic, Contributing Editor

Brad Thomas, Forbes
Brad Thomas, Forbes

New York—It was a big series of announcements from NorthStar Realty Finance late last week, so much so that the bit about the reduced dividend seemed like an afterthought. In brief, the troubled REIT committed to continuing to sell off certain CRE assets; selling and/or accelerating the repayment of its CRE loans, corporate debt instruments and real estate securities; and selling all or part of its real estate private equity fund interests.

The biggest news, though, was the part that described how NRF’s board has created a special committee, formed of directors who are not also on the board of NorthStar Asset Management Group, from which NRF was spun off in 2014. This committee has retained UBS Investment Bank as its financial advisor to explore “a potential recombination transaction” with NSAM.

“While our near term focus is centered on creating liquidity to repurchase our stock and reduce leverage, we continue to maintain a best in class investment platform and remain poised to continue to grow, as and when market conditions allow, as a diversified equity REIT,” CEO Jonathan Langer said in a prepared statement.

NorthStar declined to respond to Commercial Property Executive’s request for additional information.

Brad Thomas, editor of The Forbes Real Estate Investor, recalled to CPE that he has, over the past several weeks, increasingly called for changes at NRF. Just two weeks ago, he noted, he wrote, “NorthStar Realty Finance shareholders deserve and demand a Board reconstitution… Corporate governance and board independence is hollow at NorthStar where there is truly no board or management independence…Essentially, the NRF board is a Pinocchio that has no hope of becoming a real boy.”

Those harsh assessments followed a 2015 in which NRF made plenty of major purchases, including an approximately $607 million acquisition of a Hamburg office tower and an $1.2 billion buy of an 11-property European office portfolio.

The bottom(ish) line was that as of last week, NRF was one of the two worst performers on a Bloomberg index of 41 mortgage REITs, its stock down 39 percent just since the start of the year, as some of the REIT’s biggest hedge fund investors bailed out. Other investors, too, including Jonathan Litt of Land & Buildings Investment Management LLC, had been putting pressure on NRF, which is externally managed by NSAM under a 20-year contract.

Now, at least, Thomas says, these latest developments are “encouraging” and “a darn good start” toward putting NRF into sounder condition.