I received an email from a client asking me about my thoughts on Tom Barrack's publication last night, which forecasted an ominous and gloomy outlook for the commercial real estate market, among other markets. In case you didn't know, Tom Barrack is chairman and chief executive officer of Colony Capital Inc., a Los Angeles-based firm with $3.54 billion of assets in hospitality real estate. Colony has a publicly traded real estate investment trust (REIT) called Colony Credit Real Estate Inc., which recently reported $725 million of debt and equity investments.
Now, before we even get into what Tom Barrack's publication predicts, I think it is important to know who he is, and a little bit about his background. Let me also say that I am notoriously apolitical, and I am not attempting to express my political opinions (because I don't have any). I am, however, going to reach some conclusions based on a combination of history and todays events. I am simply stating some curious facts, and you can let your conclusions fall where they may.
Mr. Barrack is a long-time friend of the President...or at least he was. Tom Barack and President Trump have been associated as business collaborators and close friends since the 1980s. Early in the President's term, he would speak on the phone with Barrack almost daily according to White House aides, and the two have shared important life events with each-other. I don't want to exhaust the point, but it would be understated to call these men acquaintances. Most notably, Barrack was very involved in helping the President get elected. He took an active role in the Trump campaign, and one would assume that a business person would do this not only for friendship, but also for business gain or influence of some kind. No one can be sure why Barrack took such an active role in President Trump's campaign, but if influence was what he wanted, he didn't get it.
Barrack was also chairman of the president’s 2017 inauguration fund, which came under investigation. Allegedly, Barrack had a part in attempts to make it easy for some foreigners and others to try to spend money to get access to the President. That's not all though. The Mueller report stated that Barrack recommended that Trump hire Paul Manafort, his long-time friend. Manafort eventually assumed high ranking positions within the Trump Campaign after Corey Lewandowski was fired, only to be fired himself over public scrutiny of his business dealings in Ukraine. After the election, Manafort would be indicted for those same activities. Because of this unappealing information that is now public knowledge, the President has distanced himself from Barrack.
"Okay, so what," you're thinking "people stop being friends all the time." That may be true, but few people invest as much into a "friendship" as did Tom Barrack, and even fewer lose as much as he when a "friendship" falls apart. Tom Barrack's father was a grocer in California. Tom founded his company in 1991, and built it into one of the most prolific real estate investment companies in the world. There seemed to be no end in sight to his success either, even at 70 years old. However, when he took part in helping the Trump White House to develop a relationship with the Saudis, he badly damaged his own business relationship with the Qatari royal family (Saudi Arabia and Qatar don't get along; they are seriously building a moat between their countries...the opposite of a wall I guess). The Qatari royal family was one of Barrack's most important business partners. Simultaneously, Tom's company was losing important people to other companies, and shares fell around 60%. A lot of this loss of value arose from an absolutely horrific $19.9 billion merger with NorthStar Realty Finance Corp. In this merger, Barrack's company became the proud new owner of $20 billion worth of (primarily) hotels saddled with unreasonably high levels of debt.
AH HA!!! Now we know why Tom Barrack wants everyone to panic into the belief that the government must bail out property owners, hotels in particular. Now we know why, in his publication late last night, he stated : "Loan repayment demands are likely to escalate on a systemic level, triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market, including property and home owners, landlords, developers, hotel operators and their respective tenants and employees." When have you ever heard "hotel owners" thrown into the mentionables of the "entire real estate market?" Never, before now. It is only now that Barrack owns a giant smelly bag of over-leveraged hotels that he is suddenly a believer in the hotel industry's importance to the overall real estate market, and suddenly has concern of the industry's continued performance.
Do I think government should come to the aid of hotel owners? Of course I do. The distinguishing point between Tom Barrack and me though (apart from the fact that I'm not being forced out of the CEO position of the company I started) is the fact that I don't think it is useful or ethical to scare people into action for my own personal gain. "Homeowners will be swiftly impacted?" Homeowners have more equity and less debt than they have in decades. Now that world took a month off from vacations and drinking at bars the housing market is going to crash? Honestly, I think thats just stupid. People who have an under-diversified, over-leveraged interest in the hotel industry (like Tom) should be terrified. I think responsible business owners with a little savings and some good business sense have a good while to go before contemplating economic collapse.
As a final point, I would like to express, as I have in previous articles, that it is not my intention to diminish the very real suffering of people who have been impacted by the coronavirus pandemic. The purpose of my writing this is to inform on the underlying motivations for Tom Barrack's predictions, and present the idea that just because he is a billionaire, it doesn't mean he is always right or always makes good decisions. Certainly I have demonstrated that last part, right?
For more information on how The Sam Perks Company, LLC - Hospitality Management Division can assist your business, call our office at (954) 873-1055 or email SamPerks@Samperks.com. Visit our website by clicking HERE.
As a commercial real estate specialist partnered with The Echea Group at Compass, Sam Perks assists buyers, sellers, owners and tenants of commercial property. Having spent his entire career in commercial real estate, Sam is uniquely qualified to offer assistance and advice as a real estate specialist. His background includes commercial and residential construction, subdivision development, brokerage, and property management. He has served as the 2014-2015 Chairman of the Commercial Real Estate Network, and on various charitable boards and committees. Sam is also President of The Sam Perks Company, LLC, a company specializing in the delivery of hotel and hospitality management products and services, as well as concierge property services to property owners of commercial and residential real estate.
This information in this publication has been obtained from sources believed reliable. We have not verified it and make no guarantee, warranty or representation about it. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of any property or investment. You and your advisors should conduct a careful, independent investigation of any property or asset you plan to invest in to determine to your satisfaction the suitability of the property or investment for your needs.