Barrack’s Colony Capital to Combine With Two NorthStar Firms

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  • Colony CEO will run new company; Barrack will be chairman
  • Newly formed REIT will have $58 billion under management

Tom Barrack’s Colony Capital Inc. said it’s combining with NorthStar Realty Finance Corp. and NorthStar Asset Management Group Inc. in an all-stock deal to form a real estate investment trust with $58 billion of assets under management.

Shareholders of each of the companies will own 33 percent or 34 percent of the new entity, which will be called Colony NorthStar Inc., the companies said in a statement Friday. Barrack will be executive chairman of the new REIT while Richard Saltzman, Colony’s chief executive officer, will be CEO. David Hamamoto, chairman of NorthStar Realty, will be executive vice chairman.

The new REIT will have assets across diverse geographies and property types, from health-care facilities to hotels and manufactured housing. The combined entity will have wider access to capital and more potential for long-term growth, with a seasoned team for internal management, according to the statement.  

The transaction combines three “highly compatible companies with complementary strategic priorities,” Barrack, the billionaire real estate mogul behind the 2008 takeover of Michael Jackson’s Neverland Ranch property, said in the statement. “We also will realize substantial efficiencies and synergies by bringing our organizations together and offering a well-curated menu of durable real estate business lines with broad-based capital access.”

Cost Savings

The companies expect annual cost savings of about $115 million, about $80 million of that in cash and $35 million in stock-based compensation. The deal, expected to close early next year, requires approval of shareholders of all three companies. NorthStar Asset Management stockholders will receive a special cash dividend of $128 million, or about 68 cents a share, in addition to the regular dividend.

The asset-management company was spun off from NorthStar Realty Finance, a mortgage REIT, in 2014. The REIT hired a division of UBS Group AG to advise on a possible recombination in February. Activist investor Jonathan Litt of Land & Buildings Investment Management LLC had been pressuring NorthStar Realty to sell assets and return to an internally managed structure.

NorthStar “tried to create a structure that didn’t work and almost from the beginning, investors were pushing them to figure out a way to fix it,” Jeffrey Langbaum, an analyst with Bloomberg Intelligence, said in an interview. “The external-manager structure is very frowned-upon in the REIT space.”

NorthStar Asset Management announced in January that it hired Goldman Sachs Group Inc. to explore strategic alternatives. Barrack last year merged his private equity firm into publicly traded Colony Financial Inc.

Bloomberg reported on May 6 that the companies were in talks to combine. From the previous day’s close through Thursday, NorthStar Realty Finance rose 6.1 percent, NorthStar Asset management climbed 3.5 percent and Colony Capital was up 4 percent.