NorthStar/RXR Board OK’s Sale of All Assets, Merger With Advisor
August 21, 2018 | James Sprow | Blue Vault
On August 20, 2018, the board of directors of NorthStar/RXR New York Metro Real Estate, Inc., a nontraded REIT program co-sponsored by Colony Capital, Inc., upon the unanimous recommendation of a special committee of the board, approved a plan for the REIT to (i) sell all or substantially all of its assets in one or more transactions and (ii) following the asset liquidation merge with and into a subsidiary of Colony Capital, Inc.
The REIT was originally co-sponsored by NorthStar Asset Management (“NSAM”) and sub-advised by RXR Realty LLC, a real estate owner, manager and developer in the New York metro area. In January 2017 NorthStar Asset Management merged with Colony Capital, Inc. with Colony NorthStar succeeding NSAM as one of the REIT’s co-sponsors. The REIT raised only $40.7 million in its initial public offering which it closed effective March 31, 2018.
The Company currently has two real estate investments, including (i) an approximately 1% interest in a 1.8 million square foot Class-A office building located at 1285 Avenue of the Americas in Midtown Manhattan and (ii) a $19.0 million interest in a $20.0 million mezzanine loan secured by a pledge of an ownership interest in a luxury condominium development project located in the West Village of New York City (the “Jane Street Loan”).
The 1% interest in the 1285 Avenue of Americas was acquired in May 2016 and as of June 30, 2018, the REIT’s carrying value of the unconsolidated investment was $5.39 million. The REIT reported mezzanine loans with a carrying value of $34.86 million as of June 30, 2018, with the REIT’s 63.3% interest representing $19.0 million of the $35.0 million principal amount.
As of June 30, 2018, the book value of the REIT’s equity was $46.36 million and it had 4,567,642 common shares outstanding in three share classes for a book value per share of approximately $10.15. From inception through the termination of its IPO on March 31, 2018, the REIT raised total gross proceeds of $40.7 million, including gross proceeds from the DRIP.
The REIT is actively marketing the 1285 Avenue of the Americas interest but has not yet entered into a definitive agreement relating to its sale.
The REIT has entered into a sale and purchase agreement for the Jane Street Loan with an affiliate of a company managed by Colony Capital, Inc., the REIT’s co-sponsor. Pursuant to the sale agreement, the seller, which is 95% owned by the REIT and 5% by RXR Real Estate Value Added Fund – Fund III LP, will sell the loan for $20.0 million, subject to customary prorations and adjustments.
On August 20, 2018, the REIT entered into an agreement to merge with the REIT’s advisor CNI NS/RXR Advisors, LLC. At the time of the merger, each share of the REIT’s common stock issued and outstanding immediately prior to such effective time automatically will be cancelled and converted into the right to receive an amount in cash equal to its pro rata share of the net proceeds from the asset liquidations, plus all available cash held by the REIT, less all known liabilities of the REIT incurred prior to the closing date and all related expenses of the liquidations and the merger.
In the Company’s press release, David Schwarz, Chief Executive Officer and President of NorthStar/RXR stated, “After a robust evaluation of strategic alternatives by management, the special committee, and the board, we believe the proposed transactions both maximize value for our stockholders, particularly through the co-sponsors’ voluntary forfeiture of shares equal to approximately $2.4 million in total value, and efficiently provide liquidity to our stockholders.”
The transactions are expected to close in late 2018, subject to certain closing conditions, including approval by NorthStar/RXR’s stockholders.
The yet-to-be-answered question for common shareholders is “What will be the net proceeds from the asset liquidations after all related expenses of the liquidations and the merger?” Until the liquidations are completed and the funds received, and the expenses related to the merger are announced, it is probably safe to assume that the liquidating distributions will total less than the most recently reported book value per share of $10.15. Once the final distributions are made, Blue Vault will report the estimated annualized full-cycle returns to common shareholders. Given the distributions paid to date and the prospect that the liquidating distributions may total less than the original offering price of $10.00 per share for Class A shares, it appears that the full-cycle returns could be near or below zero percent, annualized.
Also, on August 20, the board of directors voted to suspend the REIT’s share repurchase program, which will go into effect on August 31, 2018. No shares will be repurchased beginning with the quarter ended September 30, 2018 and thereafter.
The REIT paid monthly distributions from October 1, 2017 through June 30, 2018 at an annualized rate of $0.275 per share (less distribution fees on Class T shares). Based upon the most recent selling price of $10.11 for Class A and $9.10 for Class I shares , this is an annualized distribution rate of 2.72% and 3.02% respectively.
Sources: SEC, Blue Vault
Learn more about Colony Capital on the Blue Vault Sponsor Focus page
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