Disastrous Case Staggers Trump Ally Thomas Barrack



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This story is from Nathan Vardi and Samantha Sharf.

T

Thomas Barrack is one of the most prominent money men of Donald Trump's time. Over the past two years, Barrack has been in the public eye as never before: fundraising for Trump's presidential campaign, prime-time television address at the Republican National Convention and presidency of the inaugural committee of Trump . Barrack introduced Trump to his former campaign manager, Paul Manafort, and facilitated conversations that strengthened his ties with Saudi Arabia and the United Arab Emirates, helping to realign the Middle East.

But just when Barrack was busy helping his friend Trump, he was also at the heart of the biggest deal of his business career, merging the real estate investment company that he had built all his life , Colony Capital, with another company to form a $ 58 fund. billion real estate giant. The agreement he reached in June 2016 was a disaster, decimating Barrack's net worth and sending him a solution. & Nbsp; & nbsp;

The tripartite merger between Colony Capital and NorthStar Realty Finance and NorthStar Asset Management was supposed to be Barrack's supreme asset. But Colony NorthStar shares have fallen nearly 60% since their IPO in 2017. The merger was aimed at creating a giant real estate investment trust with a market value of $ 9 billion. Today, the market capitalization of Colony NorthStar is $ 3.4 billion.

"The results have been disappointing, and that's the end result," Barrack said in a call from Colony NorthStar investors earlier in the year. "It's the majority of my personal net worth. This is the dominant factor in the pride, reputation and future of my family and me. "

Barrack feels the pain with the other shareholders of Colony NorthStar. Its stake in Colony NorthStar – most of its net worth – at its own expense – valued at $ 400 million after the merger, has dropped to $ 178 million.

Thomas Barrack had a privileged seat to watch his friend Donald Trump be sworn in as the 45th president.

Thomas Barrack had a privileged seat to watch his friend Donald Trump be sworn in as the 45th president. 2017 Getty Images

Few could have predicted the reverse of the fortune facing Barrack, 71. When he paid tribute to his long-time friend Trump at the Republican National Convention, he seemed to be embarking on a new life-giving chapter in his life – with a third wife of 30, his beautiful homes in California and California. France, as well as in the world of business and politics. perspectives that would not have seemed more brilliant.

Barrack's headaches were not limited to business. Earlier this year, it was reported that special advocate Robert Mueller had questioned Barrack about the investigation of Russia because of his close ties to Manafort, whom Mueller had been charged with, and Rick Gates , a vice-chairman of Trump's inaugural committee, who had pleaded guilty to two. criminal charges. (Barrack's spokesman said Barrack was not targeted by the investigation.) And if the federal inquiry's questions were not problematic enough, Barrack and his wife were sentenced to divorce proceedings . & nbsp;

Barrack, who declined to comment on this story, is now trying to revive his company and his legacy. He sells a portion of the assets that NorthStar has brought to his company, and then replicates Colony's original approach to investment management. In June, Barrack even removed the name of NorthStar and renamed Colony Capital.

"At this point, it is clear that the NorthStar Colony merger was poorly designed," says Jade Rahmani, an analyst at Keefe Bruyette & amp; Woods.

T

Son of a Lebanese grocer who grew up around Los Angeles, Tom Barrack graduated from the University of Southern California, where he was a star rugby player, then in 1972, a law degree from the University of San Diego. After practicing law for a decade, including a stay in Saudi Arabia, Barrack took a liking to politics within the Reagan administration as Under Secretary of the Interior. from James Watt.

In the mid-1980s, Barrack left politics and went to work for Robert M. Bass, the legendary Texan investor who, along with his brothers, launched the careers of some of the biggest names in finance, billionaires John Grayken, David Bonderman. Marc Lasry, Edward Lampert and the late Richard Rainwater.

Just as Barrack was helping his friend Donald Trump, he was at the heart of the biggest deal of his life. The consequences were disastrous.

Barrack managed real estate investments for Bass, including transactions involving Donald Trump. In 1986, Trump bought a 20% stake in Bass from Alexander's chain of stores. A few years later, Barrack led the Trump sale of the Bass brothers' 400-million-dollar Plaza Hotel in Manhattan. In the mid-1990s, Alexander's declared bankruptcy and Trump was forced to sell the Plaza at a loss. Although they beat Trump in both cases, Barrack and The Donald have become good friends. & Nbsp;

In the 1990s, Barrack created Colony Capital, with the support of Bass and GE Capital. The Los Angeles-based Colony took the first step in buying highly-priced savings and credit mortgage debt from the Resolution Trust Corporation.

But as Colony grew, Barrack's business, like Trump's, seemed to satisfy his thirst for celebrity. His company has stakes in casinos, a professional football team and a remarkable vineyard in Bordeaux. In 2007, he bought the assets of Michael Jackson's Neverland Ranch and, in 2010, the debt of the famous photographer Annie Leibovitz. Colony also partnered with Qatar to purchase the film studio founded by Harvey Weinstein, Miramax. Mr. Barrack also personally loaned a $ 1.5 million mortgage to Paul Manafort's wife, who was then a policy advisor representing interests in Ukraine. & Nbsp; Before the current disaster in the Barrack case, two deals mark its worst, both predating the financial crisis. . In late 2006, Colony led the $ 1.5 billion recapitalization of Xanadu, a large retail complex in northern New Jersey that subsequently failed. In 2010, lenders from Xanadu had seized the project. Another dog was Colony's purchase of Station Casinos in late 2007. Two years later, the Las Vegas company filed for bankruptcy court protection. Largely because of these two bad deals, Colony Investors VIII, a flagship fund of $ 4 billion created in 2007, would post an annual average return of -11.4% over the next decade.

Thomas Barrack speaks at the 2016 Republican National Convention, a moment that marked his greatest visibility in the Trump era.

Thomas Barrack speaks at the 2016 Republican National Convention, a moment that marked his greatest visibility in the Trump era. 2016 Los Angeles Times

In the aftermath of the financial crisis, Barrack (who fell Forbes"List of billionaires in 2014) decided to take a different approach.There would be no next large physical education fund.Instead, Colony would succeed in raising and managing debt funds In difficulty smaller, specialized in commercial real estate.As others, he also earned a lot of money by investing in single-family homes shot.

If sophisticated institutional investors were reluctant to support Barrack's new private equity offerings, its solution was to turn to public markets for investors in performance-based real estate investment trusts. In 2009, Barrack's Colony Financial began to be a real estate investment firm on the New York Stock Exchange using public money to invest in Colony Capital's real estate transactions. The REIT would be Barrack's ticket for its liquidity and permanent capital. A few years later, in 2015, Barrack merged its lead company, Colony Capital Asset Manager, with publicly traded Colony Financial. But among REITs, Colony Capital was relatively small and managed only $ 19 billion. Barrack wanted to be bigger and more relevant. He wanted the firepower.

So, one morning in January 2016, Barrack met with David Hamamoto, co-founder and CEO of a real estate group called NorthStar, at the Ritz-Carlton Hotel, on the edge of Manhattan's Central Park. During a coffee, the two men discussed the possibility of merging their real estate companies for the first time.

For Hamamoto, the agreement was a solution to a problem. Hamamoto was attacked by activist hedge fund manager Jonathan Litt. A few years earlier, Hamamoto had pushed NorthStar Realty Finance, which bought and owned properties such as hotels and retirement homes, to turn the manager of these assets, NorthStar Asset Management, into a separate public company. Litt argued that this externally managed REIT structure, where real estate assets are supervised by external managers who earn a high fee, meant that the managers did not always work with shareholders like him.

Hamamoto was a juicy target, having earned about $ 126 million in compensation, including $ 48 million in cash, between 2014 and 2016. But the shares of the two NorthStar companies had malfunctioned as separate entities. Hamamoto blamed stock underperformance for Wall Street's versatility, but, with his board, decided his best choice was to put NorthStar on the market. The deal with Barrack's Colony, an internally managed REIT, was the best that Hamamoto could find.

W

When Barrack announced Colony's merger with the two NorthStar companies in June 2016, he called it a "dynastic moment." He said the deal had "raised the group to the highest level of the real estate market" and "endowed us with an infinite balance of nearly $ 17 billion. According to the merger slide show, Colony NorthStar was "the fifth largest independent property manager" and placed the company in the same category as the giants Blackstone and Brookfield.

It did not take long, however, before the bad news began to arrive. The initial merger plan provided for Hamamoto to remain executive vice president for at least a year alongside Barrack, who was executive chairman. In November 2017, Hamamoto resigned from Colony NorthStar. Then in December 2017, Securities & amp; The records of the Foreign Exchange Commission revealed that Hamamoto had sold large quantities of its Colony NorthStar shares at prices as high as $ 12 each, for a total of $ 27 million.

In the REIT world, there is no greater measure of operational performance than cash from operations or cash flow from operations, which is essentially cash flow, excluding earnings. and losses from the sale of real estate. In its early days, Colony NorthStar had promised a FFO of between $ 1.55 and $ 1.75 per share and planned to pay a dividend of $ 1.08 to its shareholders. Depending on the trading venue of its shares, the dividend yield would be between 7% and 10%. This was for investors a heavenly manna: a star negotiator and his real estate investment fund springing up.

Few could have the expected Barrack reversal of fortune. In addition to the decline of his real estate empire, he and his wife were sentenced to divorce proceedings.

But in March 2018, Colony NorthStar admitted that its cash flow from trading for 2017 would be only $ 1.14 per share and, worse yet, that it would reduce its dividend by 60% to 44 cents per share. REIT investors dumped the shares while their shares fell below $ 6.

Richard Saltzman, Colony NorthStar's CEO and Barrack's long-time partner, highlighted the weakening of net operating income from the company's retirement home properties and the writedowns of its securities portfolios, particularly with respect to secured debt securities and secondary equity investments in private equity. funds. All of these assets came to the NorthStar company.

"It was a merger that was supposed to be neutral at worst, and so far it has been dilutive," Saltzman admitted to investors.

The plan now is to reverse the trend, return to Colony's roots as an institutional fund manager and focus on other assets. One of its new partnerships is with Digital Bridge, an investment company specializing in communication technology based in Boca Raton, Florida. It has raised $ 3 billion to invest in infrastructure, such as data centers and cell towers, as well as a publicly traded REIT managed by Colony that invests in European real estate. Colony also has a platform to invest in industrial warehouses and distribution centers. In June, Colony announced plans to acquire four private equity funds investing in Latin America, Africa and Turkey with the Dubai-based Abraaj crisis group. & Nbsp;

Thomas Barrack and his wife Rachelle at a polo match in Jersey City, New Jersey

Thomas Barrack and his wife Rachelle at a polo match in Jersey City, New JerseyRoy Rochlin 2016

Like the Trump Organization, which sought alternative sources of funding after most of the US banks and institutions were abandoned in the 1990s, Barrack should be able to call on his friends outside the United States. In June, the New York Times reported that Barrack had played a key role in facilitating talks between influential figures from Saudi Arabia and the United Arab Emirates and the Trump campaign. In fact, nearly a quarter of the $ 7 billion Colony NorthStar has managed to raise for its investment funds since Trump won the Republican presidential nomination came from Saudi Arabia and the United Arab Emirates, according to the press release. Time.

It's great for Barrack, but uncomfortable for investors who have supported the former billionaire in his NYSE-listed REIT. Today, more than $ 5 billion in market capitalization has disappeared and Colony shares languish at $ 6.50. A long-suffering Colony NorthStar shareholder said, "Because of the size of the company, it will take forever to move the dividend significantly. The increase in the dividend is of interest to everyone. "

Contact Nathan Vardi at [email protected] and Samantha Sharf at [email protected] Cover image by Chris Goodney / Bloomberg.

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This story is from Nathan Vardi and Samantha Sharf.

T

Thomas Barrack is one of the most prominent money men of Donald Trump's time. Over the past two years, Barrack has been in the public eye as never before: fundraising for Trump's presidential campaign, prime-time television address at the Republican National Convention and presidency of the inaugural committee of Trump . Barrack introduced Trump to his former campaign manager, Paul Manafort, and facilitated conversations that strengthened his ties with Saudi Arabia and the United Arab Emirates, helping to realign the Middle East.

But just when Barrack was busy helping his friend Trump, he was also at the heart of the biggest deal of his business career, merging the real estate investment company that he had built all his life , Colony Capital, with another company to form a $ 58 fund. billion real estate giant. The agreement he reached in June 2016 was a disaster, decimating Barrack's net worth and sending him to the trouble of finding a solution.

The tripartite merger between Colony Capital and NorthStar Realty Finance and NorthStar Asset Management was supposed to be Barrack's supreme asset. But Colony NorthStar shares have fallen nearly 60% since their IPO in 2017. The merger was aimed at creating a giant real estate investment trust with a market value of $ 9 billion. Today, the market capitalization of Colony NorthStar is $ 3.4 billion.

"The results have been disappointing, and that's the end result," Barrack said in a call from Colony NorthStar investors earlier in the year. "It's the majority of my personal net worth. This is the dominant factor in the pride, reputation and future of my family and me. "

Barrack feels the pain with the other shareholders of Colony NorthStar. Its stake in Colony NorthStar – most of its net worth – at its own expense – valued at $ 400 million after the merger, has dropped to $ 178 million.

Thomas Barrack had a privileged seat to watch his friend Donald Trump be sworn in as the 45th president.

Thomas Barrack had a privileged seat to watch his friend Donald Trump be sworn in as the 45th president. 2017 Getty Images

Few could have predicted the reverse of the fortune facing Barrack, 71. When he paid tribute to his long-time friend Trump at the Republican National Convention, he seemed to be embarking on a new life-giving chapter in his life – with a third wife of 30, his beautiful homes in California and California. France, as well as in the world of business and politics. perspectives that would not have seemed more brilliant.

Barrack's headaches were not limited to business. Earlier this year, it was reported that special advocate Robert Mueller had questioned Barrack about the investigation of Russia because of his close ties to Manafort, whom Mueller had been charged with, and Rick Gates , a vice-chairman of Trump's inaugural committee, who had pleaded guilty to two. criminal charges. (Barrack's spokesperson said Barrack was not targeted by the investigation.) And if the federal inquiry's questions did not cause enough problems, Barrack and his wife were sentenced to divorce procedures.

Barrack, who declined to comment on this story, is now trying to revive his company and his legacy. He sells a portion of the assets that NorthStar has brought to his company, and then replicates Colony's original approach to investment management. In June, Barrack even removed the name of NorthStar and renamed Colony Capital.

"At this point, it is clear that the Colony NorthStar merger was poorly designed," says Jade Rahmani, an analyst at Keefe Bruyette & Woods.

T

Son of a Lebanese grocer who grew up around Los Angeles, Tom Barrack graduated from the University of Southern California, where he was a star rugby player, then in 1972, a law degree from the University of San Diego. After practicing law for a decade, including a stay in Saudi Arabia, Barrack took a liking to politics within the Reagan administration as Under Secretary of the Interior. from James Watt.

In the mid-1980s, Barrack left politics and went to work for Robert M. Bass, the legendary Texan investor who, along with his brothers, launched the careers of some of the biggest names in finance, billionaires John Grayken, David Bonderman. Marc Lasry, Edward Lampert and the late Richard Rainwater.

Just as Barrack was helping his friend Donald Trump, he was at the heart of the biggest deal of his life. The consequences were disastrous.

Barrack managed real estate investments for Bass, including transactions involving Donald Trump. In 1986, Trump bought a 20% stake in Bass from Alexander's chain of stores. A few years later, Barrack led the Trump sale of the Bass brothers' 400-million-dollar Plaza Hotel in Manhattan. In the mid-1990s, Alexander's declared bankruptcy and Trump was forced to sell the Plaza at a loss. Despite having beaten Trump on both offers, Barrack and The Donald have become good friends.

In the 1990s, Barrack created Colony Capital, with the support of Bass and GE Capital. The Los Angeles-based Colony took the first step in buying highly-priced savings and credit mortgage debt from the Resolution Trust Corporation.

But as Colony grew, Barrack's business, like Trump's, seemed to satisfy his thirst for celebrity. His company has stakes in casinos, a professional football team and a remarkable vineyard in Bordeaux. In 2007, he bought the assets of Michael Jackson's Neverland Ranch and, in 2010, the debt of the famous photographer Annie Leibovitz. Colony also partnered with Qatar to purchase the film studio founded by Harvey Weinstein, Miramax. Barrack also personally took a mortgage loan of $ 1.5 million to the wife of Paul Manafort, while a political consultant then representing interests in Ukraine. Prior to the current Barrack transaction disaster, two transactions are considered the worst, both before the financial crisis. In late 2006, Colony led the $ 1.5 billion recapitalization of Xanadu, a large retail complex in northern New Jersey that subsequently failed. In 2010, lenders from Xanadu had seized the project. Another dog was Colony's purchase of Station Casinos in late 2007. Two years later, the Las Vegas company filed for bankruptcy court protection. Largely because of these two bad deals, Colony Investors VIII, a flagship fund of $ 4 billion created in 2007, would post an annual average return of -11.4% over the next decade.

Thomas Barrack speaks at the 2016 Republican National Convention, a moment that marked his greatest visibility in the Trump era.

Thomas Barrack speaks at the 2016 Republican National Convention, a moment that marked his greatest visibility in the Trump era. 2016 Los Angeles Times

In the aftermath of the financial crisis, Barrack (who fell Forbes"List of billionaires in 2014) decided to take a different approach.There would be no next large physical education fund.Instead, Colony would succeed in raising and managing debt funds In difficulty smaller, specialized in commercial real estate.As others, he also earned a lot of money by investing in single-family homes shot.

If sophisticated institutional investors were reluctant to support Barrack's new private equity offerings, its solution was to turn to public markets for investors in performance-based real estate investment trusts. In 2009, Barrack's Colony Financial began to be a real estate investment firm on the New York Stock Exchange using public money to invest in Colony Capital's real estate transactions. The REIT would be Barrack's ticket for its liquidity and permanent capital. A few years later, in 2015, Barrack merged its lead company, Colony Capital Asset Manager, with publicly traded Colony Financial. But among REITs, Colony Capital was relatively small and managed only $ 19 billion. Barrack wanted to be bigger and more relevant. He wanted the firepower.

So, one morning in January 2016, Barrack met with David Hamamoto, co-founder and CEO of a real estate group called NorthStar, at the Ritz-Carlton Hotel, on the edge of Manhattan's Central Park. During a coffee, the two men discussed the possibility of merging their real estate companies for the first time.

For Hamamoto, the agreement was a solution to a problem. Hamamoto was attacked by activist hedge fund manager Jonathan Litt. A few years earlier, Hamamoto had pushed NorthStar Realty Finance, which bought and owned properties such as hotels and retirement homes, to turn the manager of these assets, NorthStar Asset Management, into a separate public company. Litt argued that this externally managed REIT structure, where real estate assets are supervised by external managers who earn a high fee, meant that the managers did not always work with shareholders like him.

Hamamoto was a juicy target, having earned about $ 126 million in compensation, including $ 48 million in cash, between 2014 and 2016. But the shares of the two NorthStar companies had malfunctioned as separate entities. Hamamoto blamed stock underperformance for Wall Street's versatility, but, with his board, decided his best choice was to put NorthStar on the market. The deal with Barrack's Colony, an internally managed REIT, was the best that Hamamoto could find.

W

When Barrack announced Colony's merger with the two NorthStar companies in June 2016, he called it a "dynastic moment." nearly $ 17 billion. According to the merger slide show, Colony NorthStar was "the fifth largest independent property manager" and placed the company in the same category as the giants Blackstone and Brookfield.

It did not take long, however, before the bad news began to arrive. The initial merger plan provided for Hamamoto to remain executive vice president for at least a year alongside Barrack, who was executive chairman. In November 2017, Hamamoto resigned from Colony NorthStar. Then, in December 2017, documents filed by the Securities & Exchange Commission revealed that Hamamoto had sold significant amounts of its Colony NorthStar shares at prices of up to $ 12 each, for a total of $ 27 million. of dollars.

In the REIT world, there is no greater measure of operational performance than cash from operations or cash flow from operations, which is essentially cash flow, excluding earnings. and losses from the sale of real estate. In its early days, Colony NorthStar had promised a FFO of between $ 1.55 and $ 1.75 per share and planned to pay a dividend of $ 1.08 to its shareholders. Depending on the trading venue of its shares, the dividend yield would be between 7% and 10%. This was for investors a heavenly manna: a star negotiator and his real estate investment fund springing up.

Few could have the expected Barrack reversal of fortune. In addition to the decline of his real estate empire, he and his wife were sentenced to divorce proceedings.

But in March 2018, Colony NorthStar admitted that its cash flow from trading for 2017 would be only $ 1.14 per share and, worse yet, that it would reduce its dividend by 60% to 44 cents per share. REIT investors dumped the shares while their shares fell below $ 6.

Richard Saltzman, Colony NorthStar's CEO and Barrack's long-time partner, highlighted the weakening of net operating income from the company's retirement home properties and the writedowns of its securities portfolios, particularly with respect to secured debt securities and secondary equity investments in private equity. funds. All of these assets came to the NorthStar company.

«C’était une fusion qui était supposée être neutre au pire, et jusqu’à présent, elle s’est avérée dilutive», a admis Saltzman aux investisseurs.

Le plan consiste maintenant à inverser la tendance, à revenir aux racines de Colony en tant que gestionnaire de fonds institutionnel et à se concentrer sur d’autres actifs. L’un de ses nouveaux partenariats concerne Digital Bridge, une société d’investissement spécialisée dans les technologies de la communication basée à Boca Raton, en Floride. Elle a levé 3 milliards de dollars pour investir dans des infrastructures, telles que des centres de données et des tours de cellules, ainsi que dans une FPI cotée en bourse gérée par Colony qui investit dans l&#39;immobilier européen. Colony dispose également d&#39;une plateforme pour investir dans des entrepôts industriels et des centres de distribution. En juin, Colony a annoncé qu&#39;elle tentait d&#39;acheter quatre fonds de capital-investissement qui investissent en Amérique latine, en Afrique et en Turquie auprès du groupe Abraaj, actuellement en crise, basé à Dubaï.

Thomas Barrack et sa femme Rachelle lors d&#39;un match de polo à Jersey City, New Jersey

Thomas Barrack et sa femme Rachelle lors d&#39;un match de polo à Jersey City, New JerseyRoy Rochlin 2016

Comme l’Organisation Trump, qui a recherché d’autres sources de financement après l’abandon en grande partie de banques et d’institutions américaines dans les années 1990, Barrack devrait pouvoir faire appel à ses amis en dehors des États-Unis. En juin, le New York Times a rapporté que Barrack avait joué un rôle clé en facilitant les pourparlers entre des personnalités influentes d&#39;Arabie saoudite et des Émirats arabes unis et la campagne Trump. En fait, près du quart des 7 milliards de dollars que Colony NorthStar a réussi à réunir pour ses fonds d&#39;investissement depuis que Trump a remporté la nomination présidentielle républicaine est venu d&#39;Arabie saoudite et des Émirats arabes unis, selon le communiqué. Time.

C’est formidable pour Barrack, mais peu réconfortant pour les investisseurs qui ont soutenu l’ancien milliardaire dans son REIT coté au NYSE. Aujourd&#39;hui, plus de 5 milliards de dollars de capitalisation boursière ont disparu et les actions de Colony languissent à 6,50 $. Un actionnaire de Colony NorthStar, qui souffre depuis longtemps, a déclaré: «En raison de la taille de la société, il faudra une éternité pour déplacer le dividende de manière significative. L&#39;augmentation du dividende intéresse tout le monde. "

Contactez Nathan Vardi à l&#39;adresse [email protected] et Samantha Sharf à l&#39;adresse [email protected] Image de couverture par Chris Goodney / Bloomberg.