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The Real Deal Los Angeles

Tom Barrack’s capitol gains

L.A.’s star real estate magnate appears posed to profit from his ties to the Middle East and the new administration

July 14, 2017
By Katherine Clarke

Thomas Barrack (credit: Getty)

During the Arab Spring of 2011, with the Middle East torn apart by demonstrations, armed rebellions and civil unrest, Colony Capital’s Thomas Barrack said he saw opportunity in contrarian investments in Egypt, Bahrain and even Syria.

“The Middle East is printing money and it’s used to operating in chaos,” Barrack, who’s invested alongside both Qatari and Saudi partners, told the New York Times in 2011. “In fact, it tends to do better in times of chaos than it does is times of peace. Regime changes are just a fact of life.”

If chaos is what Barrack seeks out, he’s now got it on his own doorstep with the U.S.’s own controversial regime change. The real estate mogul counts President Donald Trump as a longtime friend and close confidant — Barrack gave a speech for Trump at the Republican National Convention and went on to organize the president’s inauguration festivities. The L.A. native turned down a role in the administration but retains a direct line to the White House at a time of in-house upheaval. 

On top of that, he’s a strong link between the administration and its counterparts in Qatar and Saudi Arabia as the White House seeks to cement its position on the Gulf countries’ blockade of Qatar, which has been accused of funding terrorism. Saudi Arabia, the United Arab Emirates, Egypt and Bahrain all cut travel and diplomatic ties with Qatar in June. Meanwhile, Trump chose Saudi Arabia for his first foreign trip as president, signaling to some that the U.S. was very much open for business with Saudi partners.

Sources say Barrack, as someone with Trump’s ear and as one of his chief fundraisers, is uniquely positioned to benefit from a potential uptick in Middle Eastern investors’ appetite for U.S. real estate.

As the chairman of Colony NorthStar, a U.S. real estate investment trust that raises capital from the U.S. and abroad, Barrack could line his own company’s coffers through his relationships in the Gulf. Separately, he could serve as a conduit for Middle Eastern partners looking to do under-the-radar stateside deals. Indeed, sources said he is already serving as a front for the Al Thani royal family of Qatar in the construction of a massive 77,000-square-foot mansion in Bel Air.

“He wins no matter what happens,” said Jeff Hyland, co-founder of luxury brokerage Hilton & Hyland.

Some said they’re already seeing an uptick in interest from investors in the Gulf states. In an email interview, Barrack told TRD that the new administration had been a “magnet for investment [from the Middle East] in spite of the immigration rhetoric with regard to radical Islam.”

Many of the private investors from the Middle East wish to do business quietly. For that, relationships with folks like Barrack in the U.S. are key.

“The Saudis especially are very relationship-driven,” said New York real estate attorney Edward Mermelstein. “If you don’t have a deep level of trust, it’s unlikely they’re going to work with you.”

It follows, then, that investors may derive confidence from Barrack’s close ties to Trump.

“I think he took somewhat of a risk supporting the president,” said a friend of Barrack, billionaire New York real estate titan Richard LeFrak. “It would have been easy for him, because of the nature of his business, to say he didn’t want to take such a high-profile role. But he put the bit in his mouth and he ran with it. It showed Donald he was loyal.”

“He’s probably one of the people that’s closest to the president, there’s no doubt about that,” he said.

Keeping distance

People who know Barrack, a former Reagan administration appointee, said he’s a master of operating on the fences — rarely entangling himself so deeply with a cause or a person that he cannot disentangle himself if a situation warrants it.

His association with controversial former Trump campaign manager Paul Manafort, whom he recommended to be an organizer of the RNC and who was later fired from his campaign post amid reports of cash payments he received from Russia-linked Ukrainian leaders, hasn’t grabbed many headlines, for instance. And he quickly wriggled free of allegations of cronyism when it was revealed that he’d helped Attorney General-designate Edwin Meese sell his house prior to Barrack’s appointment as undersecretary to Secretary of the Interior James Watt in the 1980s.

And in an unlikely scenario for a real estate developer, Barrack has cemented a reputation as one of L.A.’s cool kids. A tall, perma-tanned 70-year-old, he looks younger than his years and counts celebrities such as Rob Lowe among his best friends. When he wed Rachelle Roxborough, his third wife, in 2014, the guest list included Lowe, big-wave surfer Laird Hamilton, nightlife impresario Sam Nazarian and financier Gary Winnick.

It doesn’t hurt that he surfs and plays polo, too.

“When Tom walks into the room, he fills it up. People just love being around him,” said Jonathan Gray, head of Blackstone’s real estate investment team, who worked with Barrack on their companies’ joint purchase of the Savoy Group hotel firm in the late 1990s. “He’s so colorful, he’s traveled around the world and knows so many interesting people. He’s an independent thinker. My first question to him is always, ‘Tom, where are you?’ He’s in Abu Dhabi, Bhutan or L.A.”

But that cool-guy reputation could come under threat from his ties to Trump, who’s a notoriously unpopular figure in Hollywood circles. Mingling in the VIP tent at the Desert Trip music festival in Indio, California, in October, sources said, Barrack was overheard telling friends who asked about his support for the campaign that he hoped they still loved him. A Barrack spokesperson called that story “ridiculous.”

He also put that reputation on the line with his speech introducing first daughter Ivanka Trump at the RNC in Cleveland.

“I think the speech was obviously heartfelt,” said Vornado Realty Trust chief Steve Roth, who has been friends with Barrack for decades and now serves alongside him as an economic adviser to the Trump administration.

“Was it courageous? Sure,” Roth said. “To take a private businessman of high standing and have him make a speech of that magnitude on national TV in something as huge and visible as a presidential election was unbelievable. But it bought him nothing.”

Barrack has no interest in politics, hence his decision not to take an official role in the White House, according to the people who know him.

Barrack attended close friend Rob Lowe’s Hollywood Walk of Fame ceremony in December 2015 along with Gwyneth Paltrow and Fred Savage

“That’s a no-win game,” said one Barrack associate, who spoke on the condition of anonymity. “He just wants to make money, and he can make money by being the gatekeeper for all the Middle Eastern people who want in.”

In a philosophical turn, Barrack explained his own political agenda: “I am not political,” he told TRD. “I am simply a grateful recipient of both the ancient civilization of the Levant, which I inherited from my Lebanese parents, and the beauty of the free and inspirational opportunity and sanctuary of a free America.”

Barrack has a long history of leveraging the Middle Eastern market and counts members of the royal family of Qatar as close associates.

The fluent Arabic speaker first moved to the Middle East in the early 1970s, after a partner at the law firm that he was working for, Herb Kalmbach, discovered his family’s origins. He worked in Saudi Arabia on behalf of Fluor, a multinational engineering and construction firm headquartered in Irving, Texas. His first run-in with the top tiers of Saudi society reportedly came soon after, when an executive at the firm asked if anyone could play squash. Barrack was the only one who could and, in a bizarre turn of events, ended up with one of the sons of the king who was in need of a partner.

“I had no idea who he was, but my boss said, ‘However much he wants to play, you play.’ We ended up playing three hours a day,” Barrack recalled during a 2014 speech at the Lebanese consulate in L.A. “Eventually, he asked me to come work for him as his lawyer.”

There have been plenty of transactions with Middle Eastern cash ever since that time.

His Colony Capital teamed up with Saudi Prince Alwaleed bin Talal, the nephew of Saudi Arabia’s King Abdullah and the CEO of Saudi investment firm Kingdom Holding Company, to buy the Fairmont hotel chain, which he combined with Raffles in 2006. He partnered with the Qatar Investment Authority, the country’s sovereign wealth fund, to buy Miramax Films for about $660 million in 2010; they sold it to Doha, Qatar-based beIN Media Group last year for an undisclosed sum. He also once owned a stake in the French grocery chain Carrefour alongside French billionaire Bernard Arnault, with stores all over the Middle East. He sold his remaining stake in Carrefour last year for an undisclosed amount.

Transactions with the Qataris haven’t always gone off without a hitch. Barrack currently stands accused by Italian authorities of conspiring to avoid $190 million in taxes from the sale of several luxury Sardinian properties to the Qatar sovereign wealth fund. Authorities claim that Barrack artificially loaded Colony’s Sardinia company with debt in a bid to reduce the taxes owed. He has denied the allegations.

It’s “without any basis,” he told TRD. “Colony was advised on these transactions by the most sophisticated international legal and accounting professionals, and its investment vehicle paid all taxes owed under Luxembourg law.”

Colonizing real estate

Meanwhile, Barrack has been busy on the home front.

In March, L.A.-based real estate investment firm Rising Realty Partners inked a contract to buy the 42-story, 1 million-square-foot building at 300 South Grand Avenue in Downtown L.A. for $465 million. It was one of the priciest deals ever done in Downtown L.A.

Barrack and Nacho Figueras played in the 2014 Polo Classic

Its silent-majority partner? None other than Barrack’s Colony NorthStar, which typically invests through a private equity model with capital raised from both foreign and domestic markets. Sources said Colony and Rising are also interested in buying Two California Plaza, the adjacent 52-story, 1.37-million-square-foot tower at 350 South Grand Avenue owned by CIM Group.

Barrack said the “stars aligned” for the investment. “These are long-lived, irreplaceable assets, which will continue to provide attractive risk-adjusted yields for the next decade,” he said.

Colony has no obligation to disclose the identities of its investors, which could be university endowments, high-net-worth individuals, foreign governments or local pension plans. But it’s clear that its expectations for future fundraising are high.

“We are targeting total institutional and retail fundraising of $2 billion in 2017, double our fundraising performance in 2016,” Colony NorthStar CEO Richard Saltzman said during a May earnings call. “I am pleased to report that we are already approximately halfway through our target of $980 million of third-party capital raised in the first quarter.”

Barrack told TRD that the company’s “credit bucket is quite voracious.”

Institutional capital raising during the quarter was particularly robust at approximately $940 million, he said.

“There’s still some uncertainty about what Colony will look like at the end of the day, but it’s so far been received very positively by the investment community,” said Mitch Germain, an analyst at JMP Securities who covers Colony NorthStar.

Historically, Barrack’s contrarian investment style has led him toward assets or sellers in distress.

In 1982, while working for Texas billionaire Robert Bass, he bought bad loans during the savings-and-loan crisis. And when in 2009 and 2010 traditional investments weren’t offering up the returns he hoped for, he began investing through his previous company — Colony Capital —in celebrities he believed had revenue-generating potential but who had mismanaged their financial lives. Barrack rescued Annie Leibovitz and, most famously, Michael Jackson, saving the pop star’s Neverland Ranch,  which is just down the road from his own Santa Ynez ranch, from foreclosure in a $22.5 million deal.

In another of his outlandish bets, Barrack acquired the Fukuoka Daiei Hawks baseball stadium and team rights in Japan in 2003, only to sell them a year later to Masayoshi Son, the founder and CEO of Japan’s SoftBank, for 20 billion yen, then worth about $195 million. He worked with private investment firms to restructure Korea First Bank and Japan’s Aozora Bank. And he has invested in partly distressed assets, including the French soccer team Paris Saint-Germain and the former Las Vegas Hilton, now the LVH-Las Vegas Hotel & Casino.

Barrack, who’s seen as somewhat of a market clairvoyant, also controversially profited off the housing crisis by buying up more than 30,000 discounted homes across the country through another of his companies, Colony Starwood Homes. A recent report on revealnews.org from the Center for Investigative Reporting claimed that the company skimped on maintenance in order to maximize profits, leaving renters in unlivable conditions. Barrack strenuously denies the allegation; a spokesperson called the story a “hatchet job” and said that it was based on a small number of accounts. Barrack cashed out of the investment, selling his shares for a total of $135 million, in a transaction that posted just days after the publication of the article. But his team dismissed any suggestion that the sale was a reaction to the story, noting that a transaction of such scale would be impossible to conduct so quickly.

“The smart thing was getting into that business in the first place and having the conviction to do it,” Roth said.

In describing his investment style, Barrack talks in primitive terms.

“[If] you get to the jungle and you learn how to shoot an elephant and drag it out of the jungle yourself, you’ll be very successful,” he told the crowd at the Lebanese consulate.

Colony NorthStar marks a new phase of investment strategy for Barrack. The company was formed in 2016 out of Colony Capital’s $58 billion merger with NorthStar Asset Management Group and real estate investment trust NorthStar Realty Finance. Colony NorthStar, of which he is executive chairman, also owns shares in New York City properties through RXR Realty, including 1330 Sixth Avenue and 530 Fifth Avenue. NorthStar Realty Finance first bought a 30 percent ownership stake in RXR in 2013.

Barrack called the NorthStar merger a “quantum leap” for his company and said the move was motivated by a desire to build a company that could survive beyond his personal contribution.

Among its recent deals, the company paid $67.1 million, or about $71 per square foot, for four Class A industrial buildings in Orlando. In May, it completed an $850 million refinancing secured by interests in 47 hotels located in 16 states, most of which were Marriott International, Hilton Worldwide or Hyatt Hotels properties.

The formation of the company has put Barrack squarely on the public stage from a business perspective and provided more transparency into how he operates, since as a publicly traded company, Colony NorthStar must make public disclosures about its activities. The company is managed by a team he put in place and largely reflects his agenda, sources said.

“He’s a very integral piece of the strategy and the formulation of the strategy,” said JMP Securities analyst Germain. “I think he certainly has a very well-regarded reputation in the institutional community, and he brings forth a lot of relationships they can leverage to raise capital.”

The Trump connection

Barrack’s proximity to the Trump camp is more pronounced than ever — quite literally.

Colony NorthStar recently inked a deal to lease 40,000 square feet at 590 Madison Avenue in Midtown Manhattan, which is physically connected to Trump Tower via an atrium. While the move was touted as further evidence of the duo’s close relationship, Barrack spends most of his time in California.

Still, Barrack has said that he and Trump talk every day, and their connection actually goes back almost three decades. Their first significant interaction reportedly came in 1988 when Trump asked Barrack, who was at the time serving as a representative for Bass, then-owner of the Plaza Hotel, to come over to his office at Trump Tower on Fifth Avenue to discuss selling the property.

The discussion eventually resulted in Trump forking out more than $400 million for the hotel, an amount that most say left him overextended. His debt on the property ultimately had to be restructured.

Barrack was gracious, however, when he recounted the botched deal to Trump’s supporters at the RNC.

“He played me like a Steinway piano,” he said of the deal, going on to reminisce about comforting his friend following the death of his father, Fred Trump, in 1999.

But amid uncertainty regarding how Trump’s inner circle operates, many are asking questions about Barrack’s role in advising the president.

If money talks, Barrack’s voice would be one of the loudest in the nation. He was instrumental in raising $32 million in donations for a super PAC backing Trump, hosting one of the candidate’s first fundraisers at his $22 million Santa Monica home. He also raised more than $107 million for the inauguration, a spokesperson said.

Certainly, he appears to have the Trump family’s ear when it comes to important decisions. He reportedly recommended a top lawyer when Trump was fighting fraud charges and a class-action suit over his controversial Trump University. And when Trump’s son-in-law, Jared Kushner, faced foreclosure on 666 Fifth Avenue, Barrack’s Colony, which was one of the debt holders on the property, stepped in to help negotiate a solution.

In 1994, when the Trump’s Riverside South project in Manhattan hit the skids, Barrack reportedly jetted around the world on his behalf, begging high-net-worth-individuals in Taiwan, London and Saudi to buy the troubled loans on the land.

Roth said Barrack’s ties to the president will be helpful, but they’re not the holy grail: “It reinforces that he’s an individual of high substance. The fact you know he’s a friend of the president of the United States is nice. But, with respect to the president, he’s just one of dozens of people Tom Barrack knows.”

Barrack defended his friend last month on CNN, saying the disarray in the White House was intentional.

“He is the best instinctive manager that I’ve ever seen,” he said, adding that the president “absolutely” wants the “chaos.”

But Barrack may want the chaos, too. “It’s confusing to all of us,” he said of Trump’s visit to the Middle East. “And on the heels of that, we have chaos. That chaos probably is a good thing.”