STAMFORD, CT—Land and Buildings Investment Management's Jonathan Litt has "straightforward" advice for NorthStar Asset Management Group and NorthStar Realty Finance: get back together. NSAM, which was spun off from NRF a year and a half ago, earlier this month announced that it would explore strategic alternatives and had hired Goldman Sachs as its financial advisor.

Calling NSAM "materially undervalued," an assessment its chairman likely would agree with, the Land and Buildings founder and CIO says there are "numerous paths to unlock that value." In a letter to David Hamomoto, NSAM's executive chairman, Litt writes, "Since the grand experiment of spinning off NSAM from NRF in the summer of 2014, the shares of both companies have fallen over 50% from their highs.

"Externally managed REITs, such as NRF, have historically struggled to gain institutional investor support given the misaligned incentives between the manager and the REIT," he continues. Accordingly, Litt writes, "An NSAM/NRF recombination appears to us to be the right thing to do and the right time to do it for all NRF and NSAM shareholders."

Under Litt's scenario for such a recombination, the $200-million, largely perpetual, non-cancelable annual management fee NRF pays to NSAM could be worth nearly $2.6 billion at a 7% yield. "NRF is the most logical buyer, although the contract could be a coveted asset to other investors," according to Litt.

To purchase the contract, "NRF could sell manufactured housing, apartment and other assets at yields well below 7% in addition to utilizing retained earnings to acquire the management contract from NSAM accretively," Litt suggests in his letter, which Land and Buildings made public on Friday. "Once reconstituted, NRF could again be positioned to grow as it will be an internally advised and managed REIT."

When NSAM announced on Jan. 11 that it would explore its options, Hamomoto commented, "We believe our current share price undervalues the company. Our board of directors and management have always been committed to acting in the best interests of our shareholders and we are aggressively seeking ways to maximize shareholder value."