Barrack: 'Real estate is tiring and boring'

Tom Barrack has branded real estate “tiring and boring” and an asset class that will “under-perform and disappoint” if you hold it too long.

As the founder of Colony Capital eyes a potential investment in Hollywood film studio Miramax, Barrack told the Financial Times the real estate asset class could at times be “agony”, particularly when compared to investing in the arts.

Barrack

“Real estate is tiring and boring,” he told the newspaper. “It is agony. If you own it for too long, it will under-perform and disappoint you. But art has zero downside.”

Barrack is reportedly bidding to buy the Miramax studio from Disney for up to $700 million with construction magnate Ron Tutor. He told the FT that, if successful, he would focus on “distribution not production”.

Any Miramax deal is not expected to be made through Colony’s real estate funds, although capital would come from the firm, people familiar with the matter said. The source added that any deal would mark an additional investment “outlet” for Colony.

Real estate is tiring and boring. It is agony. If you own it for too long, it will under-perform and disappoint you. But art has zero downside. Tom Barrack, founder of Colony Capital

Colony is known for making unusual real estate plays, notably its 2008 acquisition of a $23.5 million loan secured against Michael Jackson’s Neverland ranch from Fortress Investment Group. Barrack told the FT, Colony hoped to sell the Santa Barbara property, either to the Jackson family or to another bidder, for about $100 million before the end of the year.

Earlier this year, the firm also came to the rescue of Annie Leibovitz after the photographer was unable to pay her debts. Becoming Leibovitz’s sole creditor, Colony secured the deal with rights to Leibovitz’s library of photographs and more than $20 million of real estate.

Those two deals were firmly secured against real estate assets. However, Barrack’s comments in the FT may not sit well with investors in its real estate funds, with the firm currently raising three private equity real estate funds. The firm is raising two equity funds, the value-added vehicle, Colony Realty Partners III, and the opportunistic Colony Investors IX. The firm is also raising its second debt fund, Colony Distressed Credit Fund II, targeting between $500 million and $750 million.

People familiar with the situation stressed though Colony's appetite for real estate deals, particularly in the debt space, after it became one of the first investors in structured portfolio loan sales from the US banking regulator, the Federal Deposit Insurance Corporation. In January, Colony invested $90 million of equity for a 40 percent stake in a $1 billion portfolio, with the FDIC retaining a 60 percent share.

The firm is also currently in line to buy its second FDIC loan portfolio from around two dozen failed lenders, according to Commercial Mortgage Alert. The report said Colony was in final negotiations on the deal and could pay around 58 cents on the dollar, or $430 million, for a 40 percent stake in the $1.1 billion portfolio.