Colony's Barrack Says `Better to Be Late' Amid Credit Crisis
By Jonathan Keehner and Jason Kelly

Oct. 10 (Bloomberg) -- Colony Capital LLC's Thomas Barrack, who founded his private-equity firm in 1991 in the wake of the savings-and-loan crisis, told investors it's too early in the financial crisis to start buying assets.

"For once, it will be better to be late rather than early,'' Barrack said in a four-page letter to investors on Oct. 8, a copy of which was obtained by Bloomberg News. "There is no bottom because no one believes the messenger.''

Barrack's sentiment echoes that of private-equity titans including Blackstone Group LP Chief Executive Stephen Schwarzman, who said last month his firm was waiting for "increasingly better opportunities.'' Buyout firms have largely stayed on the sidelines amid the credit crunch after raising a record $324.4 billion during the first half of 2008, according to London-based researcher Preqin Ltd.

Private-equity forays into struggling banks have further eroded the appetite for such deals. TPG Inc., the Fort Worth, Texas-based private-equity firm founded by David Bonderman, lost about $1.3 billion on its five-month-old investment in Washington Mutual Inc.. Investors including J.C. Flowers & Co. have also taken losses.

"As all markets come to the realization that we are now in a worldwide systemic recession -- not just a credit crunch -- things may get worse,'' the Los Angeles-based Barrack, 61, wrote in the letter, titled "In God We Trust -- But Not Counterparties.''

"The massive restructurings, refinancings and re-pricings that will now take place, cascading from the financial world to the industrial world, will be legend. The complexities, repercussions and consequences to all parties are indeterminate.''

Deals Drop

Private-equity firms, lacking financing from the Wall Street banks that provided debt at record-low prices during the leveraged-buyout boom, are unable to find funds for deals above $5 billion. Announced private-equity transactions have dropped 71 percent to $188.9 billion this year from the same period a year earlier, according to data compiled by Bloomberg.

New York-based Blackstone, the world's biggest private- equity firm by assets under management, is focusing on smaller deals and buying distressed debt through its recently acquired GSO Capital LP arm.

"We're raising the hurdles for putting money out there because there are going to be increasingly better opportunities,'' Blackstone's Schwarzman said in a Sept. 18 interview.

"You're most aggressive when you're coming off the bottom.''

Colony's Barrack firm has invested more than $39 billion in real-estate-related assets including the Savoy Group, which it bought with Blackstone in 1998, and the Meadowlands Xanadu Project in New Jersey. He foresees a commercial-real-estate slump causing additional major banks closures and requiring support or rescues for hundreds of smaller community banks.

"Every tenant of every office building everywhere is thinking of downsizing space requirements at lower rates,'' Barrack said. "Every retail tenant is suffering from the dramatic consumer downturn and dramatically lower revenue.''

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