Northstar Realty Finance Corporation, a company listed on the New York stock exchange with $16.4 billion of assets, has agreed to buy a 15 percent stake in a European fund manager.
Northstar, which is externally managed by NorthStar Asset Management, is taking a bite of Aerium, which has around €6.1 billion of assets and is headquartered in Luxembourg. The firm was launched in 2003 and manages private equity real estate funds in continental Europe, as well as separate mandates for institutional clients.
Speaking of selling the minority stake, Aerium’s chief executive officer Franck Ruimy, said: “This transaction marks a natural evolution of our business, providing further opportunities to grow our assets under management with a fully aligned and ambitious partner.”
For Northstar’s part, it wants to expand operations into Europe. The company is led by chairman David Hamamoto, a former co-head of Goldman Sachs’ Real Estate Principal Investment Area in the 1990s, and president, Albert Tylis. Daniel Gilbert is chief investment officer and Debra Hess is chief financial officer.
The corporate deal comes at a time when mid-market sized managers remain under pressure and as US and Asia investors continue to look to make platform investments to gain access to European property.
Earlier this week, global adviser EY said continued fundraising challenges had led some firms to quietly look for buyers. “With the amount of global capital looking for real estate, mid-market fund must be wondering why they cannot seem to get a break,” said the report, which was written by a team that included Mark Grinis, global real estate fund services leader, and Howard Roth, global real estate, hospitality & construction leader. The fundraising environment has remained challenging for many funds in this segment of the market, which typically raises funds in the $250 million to $500 million range.
One challenge for mid-market firms is that “mega-funds are soaking up a disproportionate amount of capital,” said Grinis, in an interview with PERE. The top largest funds collected 40 percent of the capital raised last year, he noted. “That leaves a finite amount that goes into the middle.”
Because of all of these factors, the mid-market segment of the private equity real estate industry has not grown significantly in recent years and is unlikely to do so for the next two to three years. Interestingly, however, is that many mid-market firms no longer view themselves as being in survival mode, and instead have chosen to be acquired by larger real estate fund managers. Grinis said that merger and acquisition activity involving mid-market fund managers was up 25 percent in 2014 over 2013 within the subset of firms that he tracked.