Barrack: “Europe is the unique opportunity”

Colony Capital, the Los Angeles-based private investment firm, is going big in Europe – and its newly minted status as a public company is helping them to do that.

In a Blueprint interview published in this month’s PERE magazine, founder and executive chairman Thomas Barrack explains that while the firm will remain active in the US, of greater interest is Europe, where it has increased its staff in recent years to more than 50 professionals across six offices. “Europe, I think, is the unique opportunity, because the shadow banking industry does not exist there, and the banking industry itself has virtually stopped,” he says.

Indeed, the firm has embarked on a buying spree in the region, having acquired the headquarters building of oil and gas company Statoil in Norway as well as two office campuses in Switzerland in recent months. These assets are speculated to be the seed investments for a potential new European private equity real estate fund with a target size of at least $1 billion. In addition to its recent acquisitions in Norway and Switzerland, Colony expanded into the German real estate market last month with the purchase of a 50 percent stake in fund and asset manager Hamburg Trust from HTH Hamburg Trust Holding.

The added firepower that Colony has gained as a public company since combining with its listed mortgage real estate investment trust, Colony Financial, in April, will help to support the new fund product. PERE understands that having a bigger balance sheet as a listed company has major implications for Colony’s private funds business because it will provide the firm with more balance sheet capital to seed new funds.

As PERE reported last month, the firm also recently launched a $2.5 billion real estate debt fund and plans to co-invest up to $500 million to the vehicle. Although people close to Colony have said that the poor performance of the firm’s last opportunity fund, Colony Investors VIII, was one of the principal reasons for shifting equity to debt, Barrack dismisses such claims. He points out that Colony was one of the few opportunity funds that survived the crisis. Most other opportunity funds of the 2007 vintage, however, took a hit. “Everybody else had to resaddle and ride a new pony,” says Barrack. “So some people decided to go forward, but everybody turned to a credit platform.”

Barrack makes it clear it was unlikely to launch another global opportunity fund any time soon. Instead, generally speaking, Colony currently favors structuring its equity investments as sector specific platforms, such as Colony American Homes, its $3.5 billion buy-to-rent housing business. In October 2012, Colony invested approximately $35 million for an interest in 1,177 single-family rental homes, through a joint venture with US mortgage agency Fannie Mae. Today, CAH is one of the largest owners of single-family rental housing in the US, with nearly 20,000 homes in 10 states. It also has launched a related business, Colony American Finance, which provides loans to owners of single-family rental homes.

“In growing operating platforms, you breed optionality,” he says. “You’re creating an institutional structure and an entrepreneurial product that then has manifold options – to go public, to spin the manager, to spin the assets, to refinance the assets, to grow the assets in place.”

Click here for the full interview. Also, Barrack will be speaking on Europe in Europe exclusively at the PERE Global Investor Forum in Amsterdam: https://www.perenews.com/global-investor-amsterdam/