“Externally managed REITs, such as NRF, have historically struggled to gain institutional investor support given the misaligned incentives between the manager and the REIT,” wrote Jonathan Litt, Land and Buildings' founder and CIO, in a public letter to NSAM chairman David Hamomoto. Accordingly, he continued, “An NSAM/NRF recombination appears to us to be the right thing to do and the right time to do it for all NRF and NSAM shareholders.”

Following the issue of Litt's letter, NSAM and NRF in February began exploring the possibility of reuniting. However, NSAM said in early March that a follow-up letter from Litt contained “significant factual errors” and that it was “merely an attention-grabbing tactic for an ill-conceived proxy campaign.”

LOS ANGELES and NEW YORK CITY—Confirming published reports, Colony Capital Inc. and NorthStar Asset Management Group Inc. said Friday afternon they're in talks for Los Angeles-based Colony to acquire NSAM. Colony, NSAM and NorthStar Realty Finance, which manages NSAM via an affiliate, would engineer a tri-party all stock “at the market” business combination based upon historical trading prices. Bloomberg Business first reported the talks on Friday.

In a joint statement, the three companies said the combination would create “a world-class diversified real estate and investment management equity REIT with significant scale, deep management talent, and the opportunity to generate substantial revenue and expense synergies.” The statement provided no guaatees that a deal would occur, and the three companies don't intend to provide interim updates.

NSAM was spun off from NRF in 2013 and oversees a real estate portfolio worth close to $40 billion, Bloomberg reported. The company had a market value of about $2.25 bilion at the close of trading on Friday, according to Thomson Reuters data.

This past January, NSAM announced it had hired Goldman Sachs to help it explore strategic options. Activist investor Land and Buildings Investment Management began pushing for NSAM and its former parent company to recombine.

“Externally managed REITs, such as NRF, have historically struggled to gain institutional investor support given the misaligned incentives between the manager and the REIT,” wrote Jonathan Litt, Land and Buildings' founder and CIO, in a public letter to NSAM chairman David Hamomoto. Accordingly, he continued, “An NSAM/NRF recombination appears to us to be the right thing to do and the right time to do it for all NRF and NSAM shareholders.”

Following the issue of Litt's letter, NSAM and NRF in February began exploring the possibility of reuniting. However, NSAM said in early March that a follow-up letter from Litt contained “significant factual errors” and that it was “merely an attention-grabbing tactic for an ill-conceived proxy campaign.”