A tasting time for Barrack
By James Politi in New York
Thomas Barrack last felt it was a good moment for dealmaking in the US financial services industry in the late 1980s, when he worked for Robert Bass, the Texan billionaire investor.
It was the beginning of the savings and loans crisis that shook the US banking sector, and Mr Barrack made hundreds of millions of dollars for Mr Bass by scooping up troubled loan portfolios.
Sitting in the Madison Avenue offices of Colony Capital, his own private equity firm, nearly 20 years later, Mr. Barrack has a similar sense that gems may lie deep inside the market turmoil of 2007.
"One of the greatest opportunities today is de novo lending to quality borrowers and quality companies," says Mr. Barrack, 60.
Mr. Barrack now manages a global property empire stretching from the Raffles and Fairmont luxury hotels in Asia, to the Kerzner International, Aztar and Station Casinos gaming groups in North America, and, in Europe, Costa Smeralda, a luxury resort in Sardinia.
"One year ago, lenders were lending 95 per cent loan to value and very narrow spreads in a highly competitive market. Today spreads have widened by 300 to 400 basis points, loan to value is much lower and more conservative and there is very little competition."
However, Mr. Barrack believes it may be too early to make a move: "It is a time to test and taste, not consume," he says. Colony considered an acquisition of Northern Rock, the troubled British mortgage lender, but decided against it after it became clear that the company would be sold through an auction.
Should Mr. Barrack begin striking agreements for financial services companies, particularly in the US, it would constitute a partial reversal of Colony's strategy over the past few years, when its funds mostly steered clear of American deals, making huge bets in Europe, Asia, and the Middle East instead. This international acquisition spree has turned Colony into one of the most global of the large US private equity groups, and given it a strong position in the world's real estate industry.
Mr. Barrack's boldest international move arguably came in June, when Colony agreed to pay $3.5bn for a 65 per cent stake in Tamoil, the European refining and service station group controlled by the Libyan government. The deal was groundbreaking in that it was the largest buy-out ever agreed for a Libyan asset.
It also confirmed Colony's willingness to tread into politically-tricky territory for deals, particularly in the Middle East, where Mr. Barrack's family has roots. Although Mr. Barrack grew up in Los Angeles, where Colony is based, his grandparents were Lebanese immigrants.
"They don't need money, they need expertise. They need investing partners who are interested in building long-term relationships, not carpetbaggers," Mr. Barrack said of the current generation of Middle Eastern executives. "They generally love Americans and capitalism although they are sometimes confused about America's foreign relations policy."
The Tamoil deal encountered an obstacle this month after a Bloomberg report claimed Mr. Barrack was cooling on the deal in the face of Tamoil's unwillingness to provide more information about its assets. But Colony's founder was quick to dismiss any suggestion that the takeover would not be completed.
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