Tom Barrack, the real estate mogul and ally of US President Donald Trump, is under attack from an activist investor over the publicly traded real estate investment trust that his firm holds a large stake in.
Senvest Management, a New York-based hedge fund, has written to the board of directors of Northstar Realty Europe Corp claiming the company has suffered from high management fees and should be liquidated or taken private.
It has demanded that NRE reduce its reliance on Mr. Barrack’s Colony Capital by selling off its assets and returning the cash proceeds to investors through buybacks or dividends. The other option, the hedge fund said, is for Colony to take Northstar private at a higher price than what investors would receive in asset sales.
Senvest, one of NRE’s two largest shareholders along with Colony, acknowledged that Mr. Barrack’s firm was unlikely to support the proposal. However, it added that the board “has a fiduciary obligation to the shareholders of NRE, not the shareholders of Colony”.
The board should “dismiss any potential opposition to this strategy from Colony given the obvious conflict of interest”, Senvest wrote in the letter on Monday.
NRE, a Europe-focused Reit listed on the New York Stock Exchange, has a $2.1bn portfolio that includes Portman Square in Marylebone, London; Condor House, across from St Paul’s Cathedral in the UK capital; and the Trianon Tower in Frankfurt. Its shares have dipped from $13.43 at the start of the year to $12.87 at the close of trading on Monday, still above its lowest price so far this year at just over $10.
The Reit, which has a market capitalisation of about $641m, is trading at a “substantial discount” to its net asset value, which was reported most recently at the end of June at $20.95 a share, Senvest argues.
“We sincerely hope that shareholders can rely on this board to take action and will not have to resort to changing the composition of the board to one that will take action to address NRE’s persistent, significant share discount,” the fund said.
The New York-based Senvest manages about $1.5bn and has not previously taken public activist positions. It holds a stake of 9.55 per cent in shares in NRE, and additional exposure through a derivatives position, though the exact amount has not been disclosed. Colony holds about 11 per cent.
The fund wants NRE wound down gradually, with the bulk sold off over six to nine months and the rest in the following year, in order to reduce additional fees to Colony that would be triggered by selling the assets in one chunk.
The two firms have had a complicated history. At one point, there were three Northstar entities: Northstar Realty Europe; Northstar Realty Finance, also a Reit; and Northstar Asset Management, which was meant to manage and earn fees on the other two.
Colony Capital merged with NRF and NAM in January last year, with Mr Barrack serving as chairman, while NRE remained independent. But Colony inherited the manager relationship for NRE, while also buying shares on the public market in the Reit.
Colony was renamed Colony Northstar for a period, though several months ago changed the name back to Colony Capital. The firm, which reported larger than expected losses on the merged entity in May this year, grew by investing in distressed mortgages after the financial crisis.
The company has garnered more attention over Mr Barrack’s relationship with Mr Trump, at one point hiring the president’s former deputy campaign chairman, Rick Gates, as a consultant. That relationship ended after Mr Gates pleaded guilty to charges arising from the investigation of Russia’s interference in the 2016 election.
Mr Barrack also threw a lifeline to The Weinstein Company about a year ago after its co-founder Harvey Weinstein was hit by allegations of serial sexual harassment, at the time providing an immediate “capital infusion”. The film company filed for bankruptcy protection in March.
