Tom Barrack’s prediction that the commercial mortgage market would collapse has now hit close to home.
The magnate’s Colony Capital has defaulted on $3.2 billion in loans backed by hotel and health care properties, according to a regulatory filing first reported by the Financial Times.
Before the coronavirus crisis sent the economy into a spiral, that portfolio of 157 hospitality and health care-related properties accounted for three quarters of Colony’s real estate balance sheet. However, the company did not specify how many properties were at risk because of the defaults.
Barrack, longtime pal of President Donald Trump, in March authored a white paper on Medium predicting that margin calls, foreclosures, evictions and bank failures stemming from the crisis could have an impact greater than that of the Great Depression on commercial real estate. He called for government support of the industry and a $500 billion tax-payer funded liquidity injection into the financial system.
In April, the CEO appeared on Bloomberg Television claiming that the real estate industry was in dire straits because the government was allowing homeowners and renters skip payments. At the time, Barrack said the number of tenants in Colony’s portfolio that paid rent was “amazingly good,” but predicted a falloff in May.
As for its recent defaults, Colony said that it could not guarantee its current talks with lenders would be successful. The investment firm has $1 billion of cash on hand and tapped into a $600 million credit facility. Colony’s chief financial officer, Mark Hedstrom, said the company expects to meet its obligations. [FT] —Danielle Balbi