Friday Letter What about Tom?

Tom Barrack’s colourful views on art, economics, real estate and life make this asset class that much less ‘tiring and boring’, as he described it recently. But has the Colony founder gone too far in his property-bashing remarks? 

His regular “Chairman’s Corner” postings on Colony Capital’s website are proof enough that Thomas J. Barrack is a man who loves a good parable; his stories filled with life lessons taken from polo, surfing, golf, yachting and even the tale of Davy Crockett.

Indeed, Barrack’s ability to boil down these insights into a vision for real estate investment is part of the reason why many limited partners have joined Colony’s commingled funds. Over the years, Barrack has led the firm in many great deals. His high profile has clearly helped Colony to raise significant amounts of capital for its funds and co-investments – to become the fifth largest private equity real estate firm in the world, according to PERE – as well as close deals not available to just anyone.

Yet, in speaking to the Financial Times this week, Barrack’s penchant for publicity could have backfired. Discussing Colony’s expected $650 million deal to buy the Miramax Films name and its 611-picture library, in partnership with construction magnate Ron Tutor, Barrack warned against investing in real estate for the long-term, saying it would only “under-perform and disappoint you”.

He then went further by declaring that “real estate is tiring and boring,” insisting instead that “art has zero downside”. For someone who has built their billions on the back of real estate, and whose firm is currently raising three real estate-related funds and investing billions of dollars of LP capital, the statement is remarkable.

The reaction, of course, has been wide-ranging with some people telling PERE that the comments were “hysterical” and “typical Barrack”. For others, the remarks should be “worrying” for existing investors, with one consultant asking: “If real estate is boring, why is he doing it?”

It is suggestions that art has no downside, though, that has provoked the most criticism.

Real estate valuations, although never definitive, are grounded upon solid numbers such as income and replacement cost. The value of art, however, is extremely fickle – especially in the movie business. You can try to predict how an office building in Seattle will perform. You can also try to predict how the movie “Gone Baby Gone” will perform. You’re more likely to be correct on the Seattle prediction.

Barrack told the FT the move into movies – which will not be made through Colony’s real estate funds, sources confirmed – was neither unwise nor ego-driven. “I intend to focus on distribution, not production,” he said.

For Colony’s real estate investors, however, it leaves them wondering how much attention Barrack is paying to the asset class that made him who he is today.

No doubt Barrack will be clarifying his comments in the near future, but we have a hunch that this screenplay ends with the Colony hero falling back in love with his tried and true sweetheart – real estate.