Colony Capital’s merger with NorthStar has left many wondering about its European strategy.
The merger of Los Angeles-based Colony Capital with New York’s NorthStar Asset Management was bound to cause some fall out.
Since the ink has dried on the merger in January, Colony NorthStar’s stated strategy is to simplify its business, focus on strategic real estate ‘verticals’ – such as healthcare, industrial and hospitality – while retaining its investment management business alongside and within its REIT status.
With around 90% of $56 bn combined AUM located in the US and only $5bn in Europe, it is a fair assumption that success is going to depend mainly on what it does in North America. So questions Europeans might ask are: ‘What is the European strategy? What is the future for head of Europe Nadra Moussalem and his team? And what is the wider impact upon Europe?’
In Europe, there have been at least two significant departures, suggesting plans formed two years ago for a euro-denominated private equity real estate fund have been shelved, alongside corporate private equity-style deals internationally and an infrastructure business.
US focus
It has been said by a source who wished to remain anonymous that, since the merger, Colony NorthStar has become more focused on operating in the US rather than being an international player, perhaps to assuage analysts looking for simplicity and clarity.
In April, at a convention in Los Angeles, for example, the message from the top was all about how big the firm was going to be, but Europe was not on the agenda.
And, in an investor presentation on 9 May, Europe hardly figured apart from mention of NorthStar Realty Europe with $2 bn of assets.
The message from the firm is that all is ‘perfect’ and ‘beautiful’, to echo the words of President Trump, whose inauguration Colony NorthStar’s executive chairman Thomas Barrack organised. But whether that is the case remains to be seen.
In Europe, Colony NorthStar is a mixture of component businesses. And, owing to the expiry of closed-ended funds, there are legacy assets which will need to be sold over the next 12-24 months which might limit net AUM growth. Some of these assets are owned by Colony’s European fund business advised by Colyzeo Investment Management. Expected sales include a joint venture interest in Data 4, created in 2006 with French telecoms giant Alcatel.
Then there is a $1.3bn US registered dollar-denominated real estate credit fund, Colony Distressed Credit & Special Situations Fund (CDFC) IV, that was not AIFMD compliant and raised double currency hedging issues for European investors. That fund is nevertheless said to have invested well in deals such as Project Tolka, a portfolio of loans for which it paid Ireland’s National Asset Management Agency (NAMA) €455 mln, NPLs from Société Générale, and a €100 mln financing of a Berlin redevelopment.
But the fund, which is 60% focused on Europe, is now 80% invested/committed, so a follow-on fund would be required to maintain the flow of investment capital in the medium term.
Lastly, NorthStar Realty Europe is a New York-listed spin-off REIT that owns 30 properties in Germany, the UK and France and last month teamed with China Resources Land Ltd to buy 20 Gresham Street in London for around £300 mln. The REIT’s growth can be predicted if opportunities can be found.
NorthStar Realty Europe hires do point to that. Alison Breland, for example, joined Colony NorthStar’s Luxembourg office this month as head of European finance and accounting. She writes on her LinkedIn account: ‘I am thrilled to have recently joined an amazing group of people and look forward to participating in the growth of the European platform.’
Meanwhile, Paris-based Jean-Philippe Besse, former head of international business development at La Français AM, was appointed in March as a senior adviser, investor relations – Europe – to assist Colony NorthStar’s European team in promoting a hotel club deal thought to be related to Accor’s sale of HotelInvest with €6.6 bn hotel assets.
In terms of deals, Colony NorthStar also recently acquired CPI Group Holding, which owns Continental Property Investments (CPI), a Paris-based real estate company that focuses on hotel, office and industrial assets in France, Germany, England and Spain, and which opened an office in Madrid in October 2016.
But while there is some evidence that Europe will remain a key region, there is also evidence suggesting retrenchment. Sources said departures other than those noted here have occurred such as Pascale Leclerc from the Luxembourg office.
Time will tell, but one thing is clear: the company once renowned for making eclectic investments – it bought French football club Paris Saint-Germain – is changing.
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This analysis appeared earlier in EuroProperty, the weekly publication of the PropertyEU Group.
