De-Colonized: How Tom Barrack’s firm broke with its founder
As case against ex-CEO took shape, Colony Capital changed name, leadership, headquarters and transformed portfolio
In the autumn of 2018 and following political misadventures that would lead to his arrest on federal charges Tuesday, Thomas Barrack returned from a four-year hiatus to retake the reins at Colony Capital.
While Barrack was occupied with Donald Trump’s first presidential campaign and intrigue in the Middle East, the real estate company he founded had fallen on tough times following its $19.9 billion all-stock merger with NorthStar.
“It was a bad deal. It was a horrible deal,” Barrack recounted in an interview last week with Bloomberg. “I take responsibility for taking my eye off the ball.”
But a new opportunity presented itself soon enough. Nine months after Barrack’s return as CEO, Colony announced a $325 million deal to acquire digital infrastructure investment firm Digital Bridge Holdings, with plans for its chairman, Marc Ganzi, to take over as Colony’s CEO by 2021.
The subsequent transformation of Colony’s business has been dramatic. In just a couple of years, its portfolio has gone from 80 percent hotel, office, warehouse and retail to about 70 percent digital-related assets, including data centers, cell towers and fiber-network properties.
Colony also relocated its headquarters from Los Angeles to Boca Raton, Florida, in January, and rebranded as DigitalBridge last month.
Despite the new leadership, portfolio, location and name, Ganzi has insisted there is a continuity between past and present, anchored in fundamental real estate principles.
“A lot of people have stayed from old Colony,” he told The Real Deal in an interview in the spring. “The principles that existed at Colony Capital for 30 years are no different than what existed at DigitalBridge for 27 years: We have great customers, we have to service them, we want long-term leases and we want to be the landlord of choice.”
What it doesn’t have anymore is Barrack. And for that, the company may be breathing a sigh of relief.
The founder and ex-CEO was charged in a seven-count indictment with acting as an agent for the United Arab Emirates to lobby former President Donald Trump on foreign policy. He was also charged with obstruction of justice and making false statements during a June 2019 interview with federal law enforcement agents. Also charged was Matthew Grimes, a former Colony employee who allegedly reported directly to Barrack.
The company’s separation from its creator is evident in investors’ reaction: They barely blinked.
DigitalBridge’s share price has dropped a modest 5.1 percent to $6.85 since the Department of Justice announced charges against Barrack, to Thursday morning.
“If he were still the CEO that would be a different story,” said Tom Hazen, a longtime securities law professor at the University of North Carolina at Chapel Hill. “I just don’t see that they [DigitalBridge] have an issue.”
DigitalBridge declined to comment.
Barrack, who started Colony in 1991, stepped down as CEO in 2020 and left his position as executive chairman in April. At the time, he owned 5.6 percent of the company’s total common stock, according to its proxy statement.
On Tuesday, Barrack also resigned from his seat on the board of DigitalBridge, according to a filing with the Securities and Exchange Commission. Separately, he has discussed future plans to invest with his family office and club investors.
And last week, he converted nearly 68,000 shares of common stock from Class B to Class A — a move that reduced his influence because Class B stock carries outsized voting rights, according to an SEC filing.
Neither Colony nor DigitalBridge has been charged with any crime. Despite the recent firewall DigitalBridge appears to have created, it will likely conduct an internal investigation to see whether it had any exposure to wrongdoing, said attorney Andrew Ittleman. That would include searching through any communication between Barrack and Grimes, added Ittleman, an anti-money laundering specialist at Fuerst Ittleman David & Joseph.
“There’s a lot of shit that these guys need to look at,” he said.
‘Legacy’ asset selloff
While the former real estate company had already begun shedding its property portfolio when the coronavirus hit, the rise of remote work may have accelerated the Colony-DigitalBridge transition.
Colony defaulted on $3.2 billion in hotel loans last May and by September had made a deal to sell the bulk of its 29,000-key portfolio to Highgate Hotels for $2.8 billion.
In the past few months, the firm also sold two Dublin office buildings to Blackstone Group for $351 million and the bulk of its other equity and debt holdings to Fortress Investment Group for $535 million. It sold its 27.2 percent stake in New York real estate firm RXR Realty to Dyal Capital Partners for an undisclosed sum. In parallel with the sale of these “legacy” assets, the company has established new tech-focused ventures, such as data centers in Europe and wireless towers in Asia.
Anguish and agony
Days after Colony announced its merger with DigitalBridge in July 2019, the New York Times reported that Barrack was the subject of an inquiry into lobbying violations — and that he had recently been interviewed by prosecutors with the U.S. Attorney’s Office in Brooklyn.
Soon after, Bloomberg News reported that a Saudi sovereign wealth fund had invested a nine-figure sum in Colony and DigitalBridge’s $4 billion digital infrastructure fund. The reports shined a light on Barrack’s business ties with the Middle East, which date back to the 1970s — when he began playing squash with a Saudi prince while working at the law firm of President Richard Nixon’s personal attorney.
“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, who is fluent in Arabic, told TRD in 2017.
While Tuesday’s charges focus on Barrack’s ties to the UAE, his network in the region spreads across several Gulf countries.
In 2017, he was revealed to be the frontman for a mega-mansion project in Bel Air backed by Qatar’s Al Thani royal family. That same year, he faced accusations of tax evasion from Italian prosecutors for the 2011 sale of several luxury properties in Sardinia to Qatar’s sovereign wealth fund.
The period when Barrack was allegedly lobbying for the UAE was a fraught one for Gulf politics, as Saudi Arabia and the Emirates orchestrated a blockade of Qatar that would last until the start of this year.
“It’s confusing to all of us,” he said in 2017, referring to then-President Trump’s visit to the Mideast. “And on the heels of that, we have chaos. That chaos probably is a good thing.”
His assessment of those years appears to have changed. In his recent interview last week, Barrack characterized his time with Trump’s campaign and early presidency as full of “anguish” and “agony.”
“When you’re looking back at that process, it wasn’t fun, it wasn’t rewarding, it wasn’t any of those things,” he said. “There are very few businessmen that ever survive in the political milieu in Washington.”