NEW YORK CITY and LOS ANGELES—Colony NorthStar Inc. (CLNS), itself the result of a three-way merger that closed this past January, now will figure in another such combination. The company will contribute a select portfolio of assets and liabilities to a tri-party agreement that also involves a pair of public, non-traded REITs, NorthStar Real Estate Income Trust Inc. (Northstar I) and and NorthStar Real Estate Income II Inc (NorthStar II).
The all-stock merger will create a commercial real estate credit REIT with approximately $5.5 billion in assets and $3.4 billion in book value. It will be the second largest publicly listed commercial mortgage REIT after Starwood Property Trust.
CLNS will be the largest single investor in the new entity, to be known as Colony NorthStar Credit Real Estate Inc. Kevin P. Traenkle, CLNS's EVP and CIO, is expected to serve as CEO of the merged entity, with Sujan Patel, CLNS's managing director and co-head of US investment management, serving as CFO.
More efficient access to capital is among the advantages the new mortgage REIT is expected to call upon. It's also anticipated to have a diversified investment mandate across the capital structure that will mitigate reinvestment risk and provide flexibility through economic cycles to achieve appropriate risk-adjusted returns.
At a 42% slice of the pie, senior loans will comprise the largest share of the new entity's investment portfolio, according to an investor presentation. Owned real estate will account for another 30%, with mezzanine loans, private equity, preferred debt and CMBS all taking smaller shares. By property type, office will be the most represented sector at 28%, followed by hotel (20%), retail and industrial (15% each) and multifamily (13%).
Under terms of the merger agreement, certain Colony NorthStar subsidiaries will contribute a portfolio that represents substantially all of the US investments within Colony NorthStar's Other Equity and Debt segment. The combination is expected to close in late 2017 or in the first quarter of 2018.
J.P. Morgan Securities LLC is acting as the lead financial advisor with Barclays acting as a financial advisor to CLNS, and Hogan Lovells US LLP is acting as its legal counsel to Colony NorthStar. For the special committee of NorthStar I, Credit Suisse Securities (USA) LLC is acting as financial advisor and Alston & Bird LLP is acting as legal counsel. For NorthStar II's special committee, Moelis & Co. is acting as financial advisor and Venable LLP is acting as legal counsel, while Greenberg Traurig, LLP is acting as legal counsel to NorthStar II.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
