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NorthStar Real Estate Income II Originates $38.1 Million Subordinate Interest

NorthStar Real Estate Income II Inc., a publicly registered non-traded real estate investment trust, originated a $38.1 million subordinate interest in a 12-property, 2,811-unit multifamily portfolio with properties located in New Jersey, Pennsylvania and Delaware.

NorthStar Real Estate Income II, which funded the subordinate interest with proceeds from its offering, initially funded $35.1 million of the subordinate interest at origination, and intends to fund the remaining $3 million for capital expenditures over the investment term.

The portfolio contains approximately 2.2 million square feet of residential space and more than 12,000 square feet of retail space. The portfolio is close to several major metropolitan markets with concentrations proximate to New York City and Philadelphia. The portfolio purchaser, an unnamed affiliate of a New York City-based real estate investment fund, intends to implement $21.1 million in capital improvements to the portfolio.

The subordinate interest bears a fixed annual interest rate of 12 percent. Cash flow from the portfolio currently supports the interest rate, however, the subordinate interest has been structured to allow up to 4 percent interest accrual in the event that the portfolio’s cash flow declines.

At the time of closing, the portfolio purchaser contributed $20.9 million of equity toward the acquisition of the portfolio. The remaining cost of the portfolio acquisition was financed with a $132.8 million loan by an unaffiliated third-party lender. The portfolio purchaser will pay interest on the senior borrowing at a floating rate of 2.58 percent over the one-month LIBOR. The senior borrowing may be prepaid subject to a one-year lockout period and then a 1 percent prepayment fee thereafter.

The loan-to-value ratio of the subordinate interest is approximately 89 percent.

NorthStar Real Estate Income II commenced its initial public offering of $1.65 billion in shares of common stock in May 2013. As of December 15, 2015, the company has received and accepted subscriptions in our offering for 84.5 million shares, or $841.9 million, including 0.4 million shares, or $3.9 million, sold to NorthStar Realty Finance Corp. The primary offering is expected to terminate on or before May 6, 2016.