NEW YORK CITY—NorthStar Realty Finance Corp. said Thursday it plans to spin off its European operations into a separate, publicly traded REIT.  The spinoff company, NorthStar Realty Europe, would launch with about $2 billion worth of commercial real estate properties that NRF will contribute, located mainly in the UK, France and Germany.

“We believe that NorthStar Realty Europe will represent one of the only premier, high-quality pan-European commercial real estate portfolios available in the market,” says David Hamamoto, NRF's chairman and CEO. The proposed REIT would be launched at what Hamamoto calls “a critical inflection point in the European real estate cycle, which has lagged the US recovery and currently exhibits a historically wide spread between cap rates and interest rates.” Accordingly, NRF notes in an investor presentation that real estate values in Europe are still well below the prior cycle's peak.

NRF sees the spinoff as a way to unlock value for its shareholders through benchmarking NorthStar Realty Europe against other publicly traded European equity REITs. The new company would be a pan-European investor through an equity REIT structure with target leverage levels of between 40% and 50%.

At the outset, NorthStar Realty Europe would have a portfolio of 50 properties totaling five million square feet, mainly in the office sector. Its tenant roster includes BNP Paribas, Cushman and Wakefield, Ernst & Young and Deloitte; the portfolio is currently 92% occupied and has a remaining weighted average lease term of approximately five years. The spinoff REIT would be managed by NorthStar Asset Management Group Inc.

UBS Investment Bank and Deutsche Bank Securities Inc. are serving as financial advisors to NRF, while Green Street Advisory & Consulting Group is serving as a strategic advisor and Sullivan & Cromwell LLP is serving as legal advisor. The company plans to discuss the proposed spinoff during its earnings call on Friday.