John Gittelsohn and Jason Kelly (Bloomberg) -- Tom Barrack built Colony Capital Inc. buying distressed real estate during economic downturns.
This time, however, Colony is selling brick-and-mortar properties as it reshapes its portfolio to focus on what it calls “digital infrastructure.”
As part of a strategy shift announced before Covid-19 hit, the Los Angeles-based firm is buying what it calls digital assets -- mobile phone towers, fiber optic cables, data centers and transmitters for 5G communications.
With the pandemic battering commercial real estate, Barrack said properties including malls and hotels are still attractive to investors who are raising cash to take advantage of the next round of distressed opportunities.
The coronavirus outbreak, however, has shifted the economics of real estate as employees work from home, travel is slow to rebound and consumers shop more online, Barrack said.
“Every aspect of it has to be repriced and reinvented and entrepreneurs will figure out how to do it,” Barrack said in a Bloomberg Television interview accompanied by Colony’s new chief executive officer, Marc Ganzi. “I think all the existing things will stay. They’re just not going to stay in the kind of investment theme that investors looked at over history.”
Colony has sold offices in Europe, industrial properties and grocery-anchored shopping centers in the U.S. In May, it announced plans to restructure seven portfolios of hotels with $3.5 billion of debt.
About 50% of the company’s $46 billion of assets under management are now digital properties, a share that should reach 90% by the end of the year, according to Ganzi, who took over as CEO in July.
“These are really the new railroad,” Ganzi said.
Investors remain skeptical. Colony’s shares have dropped more than 40% in 2020, while the S&P 500 has gained 5%.
Barrack, 73, founded Colony in 1991, acquiring distressed real estate from the Resolution Trust Corp., which managed assets following the savings and loan crisis.
In December, Barrack faced calls from an activist investor to immediately step down from the CEO job, which he had said he would leave in 2021. The company announced in March, just as the pandemic was shutting down the U.S. economy, that Ganzi,, 49, would take over on July 1.
“I couldn’t be happier and more hopeful,” Barrack, who remains executive chairman of Colony, said of the transition. “It’s the world we need to worry about.”
- There are opportunities to develop digital infrastructure in the suburbs and outside cities, but concerns that the pandemic will end the attraction of New York or Los Angeles are “somewhat overblown,” Ganzi said.
- Colony is finding buyers for its assets because “there’s opportunistic real estate capital being raised around the globe right now,” Ganzi said.
- Barrack, a longtime friend of Donald Trump who was chairman of the inauguration committee, said democracy is “threatened” because the gap is widening between the rich and poor. “That’s got to be fixed,” he said.