Well, I found out what Barrack's heritage is....Lebanese! No wonder he's so nice and dark. A really good looking man he is! Anyway, here is an article.
I'm Tom Barrack* and I'm getting out
*The world's best real estate investor has made billions in the U.S. market. Now he's cashing out and buying overseas. Should you cash out too?
By Shawn Tully
October 31, 2005
(FORTUNE Magazine) –
Tom Barrack is driving a dusty Chevy Suburban around his 1,200-acre mountain ranch near Santa Barbara, Calif. Nestled between the Ronald Reagan estate and Michael Jackson's Neverland, Barrack's spread is a medley of vineyards, pastures, and paddocks. Barrack cruises past the lovingly restored manor house, a rambling adobe aerie framed by allées of cabernet franc, then weaves through a cluster of stables sheltering 60 horses that munch homegrown wild oats. Even in this magical setting, real estate is never far from his thoughts. He stops the Suburban at his favorite spot, a vast polo field planted with delicate, lime-hued Bermuda grass that's easy on the horses' hooves. Then Barrack launches into a parable. "I feel totally safe playing polo on a field full of pros," says the bronzed 58-year-old. "But when amateurs are all over the field, someone can get killed. They have more guts than brains. They charge after every ball and don't know when to hold back." It's the same with the U.S. real estate market right now: "There's too much money chasing too few good deals, with too much debt and too few brains." The amateurs are going to get trampled, he explains, taking seasoned horsemen, who should get off the turf, down with them. Says Barrack: "That's why I'm getting out."
Investors, take heed. Barrack may be an amateur in polo, but when it comes to judging markets, he's the ultimate pro. Arguably the best real estate investor on the planet today, he runs a $25 billion portfolio of trophy assets, from the Raffles hotel chain in Asia to the Aga Khan's former resort in Sardinia to Resorts International, the largest private gaming company in the U.S. Barrack's Colony Capital of Los Angeles, one of the largest private-equity firms devoted solely to real estate, has racked up returns of 21% annually since 1990, handing investors, chiefly pension funds and college endowments, 17% after all fees. Barrack has done deals with Saudi princes, Texas oilmen, a Caribbean dictator--even with Donald Trump. He bought the Fukuoka Dome, Japan's Yankee Stadium, in part because he calculated that the titanium in the retractable roof was worth as much as the purchase price. He bought and sold New York City's Plaza hotel, turning a fast $160 million profit, as well as London's tony Savoy chain, netting another $270 million. Even Trump defers: "Tom has an amazing vision of the future, an ability to see what's going to happen that no one else can match."
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In the clubby world of bigtime real estate investors, Barrack is a star; outside that circle few people have heard of him, in part because he's never run a publicly traded company. But that doesn't diminish his accomplishments or his insights. Worth more than $1 billion--a fortune amassed over four decades of dealmaking around the globe--Barrack is the quintessential insider. After much cajoling, he agreed to speak with FORTUNE about a wide range of issues: the year he spent as assistant secretary of the interior in the Reagan administration under James Watt, an infamous foe of environmentalists ("Watt would talk about mining the parks," recalls Barrack. "I wanted to climb under the table"); a favor he did for Edwin Meese that brought him into the cross hairs of a special prosecutor ("I've always been under the radar screen, so I hated the notoriety," he says now); his contrarian investment philosophy; and his dark fears for the U.S. real estate market.
Barrack is a man of immense charm, a swashbuckler who moves at a furious gallop yet exudes an aura of calm. At 6-foot-3, he has the lanky build of a wide receiver--and the velocity: He's constantly circling the globe in his Gulfstream IV. "He goes crazy if he has to stay in the same place three nights in a row," says Mark Hedstrom, Colony's CFO. In the summer Barrack ostensibly lives in Sardinia, but he jets off every few days to New York, London, or Tokyo and spends weekends with his family in the South of France at a medieval chateau, once summer home to the bishop of Grasse. (Barrack has a 9-year-old son plus three adult children from a previous marriage.) He sleeps no more than four hours a night and doesn't wear a watch. "In his world there is no day and no night," says Tom Harrison, a chief lieutenant. "He acknowledges no changes in time zone. His time is totally fluid." For relaxation he plays polo at tournaments in California--his teammates are three Argentine professionals he's hired--or surfs in Hawaii with a free-spirited bunch of fiftysomething locals who've dubbed themselves the Beach Boys.
His approach to investing is as strikingly original as the man himself. Most celebrated real estate operators these days are in the real estate investment trust (REIT) business--Sam Zell at Equity Office Properties and Equity Residential Properties, Steve Roth at Vornado--but they tend to focus on buildings with strong tenants that can reliably deliver annual returns of 7% or 8%. Barrack shuns what's known in the trade as "chasing yield." He's aiming for returns double or triple that size. To get his gaudy numbers, he'll go to the far corners of the globe, looking for underappreciated assets he can buy cheap, fix up, and resell, usually within about five years. If a potential deal is complicated or politically sensitive, so much the better. Barrack cherishes thorny situations because they scare off most other bidders. Auctions aren't for him. "How do you congratulate yourself when you've outbid eight of the smartest people in the world?" he marvels.
There is much method to his madness. By focusing on distressed properties with lower pricetags, he limits his risk and maximizes his potential gains. He has 182 employees around the world who monitor local markets, looking for opportunities he can exploit. At the same time, he buys primarily high-quality properties--those that, if skillfully resurrected, can command a premium. London's Savoy is a case in point: Controlled for 40 years by a family trust when Barrack's Colony and private-equity firm Blackstone Group scooped it up in 1998 for $950 million, the chain had failed to promote itself to U.S. business travelers. Barrack and Blackstone did, and in mid-2004 sold it for $1.4 billion, having already pocketed $100 million from such gambits as converting hotel rooms into luxury condos at the legendary Connaught in London.
A different sort of example: his U.S. casino properties. Colony bought the Resorts casino in Atlantic City in 2001 for $140 million, about half what its previous owner had paid five years before. Then Caesars decided to sell the Las Vegas Hilton in 2003--but didn't want to turn it over to a big rival like MGM Mirage. Barrack swept in, already equipped with a gaming license, and grabbed it for a bargain $280 million, one-tenth of what Steve Wynn would spend to build his new casino, which is roughly the same size, around 3,000 rooms. Barrack and his casino operations chief, Nicholas Ribis (who'd kept Trump's gaming business afloat in a sea of debt in the 1990s), repositioned the Hilton away from high rollers and toward visitors flocking to the neighboring Las Vegas Convention Center. Even with its $135-a-night rates, the Hilton now generates $36 million in annual cash flow, five times the figure when Colony bought it. All told, Barrack's six casinos produce $2 billion in annual revenue and $120 million in after-tax profits on an equity investment of $540 million--a 22% return.
LIVING ON THE EDGE
IF BARRACK'S LIFE story offers a lesson for ordinary investors, it's that you should always operate in areas where you have an edge. It's a theme that comes up again and again over the course of Barrack's career.
The grandson of Lebanese immigrants, Barrack grew up in the Los Angeles suburbs in a tiny stucco house, where his mother hung out the wash. His father worked 18 hours a day at the family grocery store. After school Tom stamped prices on cans and manned the register. He went on to the University of Southern California, where he was a star on a national-championship rugby team, worked on campaigns for California Republicans, and in 1972 got a law degree. His first job was at the firm of Herb Kalmbach, President Nixon's personal attorney, but he didn't stay long. One of the firm's biggest clients, construction giant Fluor Corp., needed a volunteer to live in Saudi Arabia for a few months to negotiate a contract. Saudi Arabia was hardly a posh posting, but with oil dollars rolling in, it was deal central. Barrack leaped at the chance.
He found himself sleeping on a filthy cot in a Riyadh dormitory without indoor plumbing. But he soon learned that an American lawyer who could connect swaggering Texas contractors with berobed Saudi sheikhs could be a hot commodity. When his Fluor assignment ended, Barrack stayed on and went to work reviewing deals for two young Saudi princes. (Foreign suitors needed a sponsor in the royal family to win government contracts.) Barrack learned Arabic and immersed himself in the local folkways. "When I'd go back to California for a visit, my friends couldn't understand what I was doing," he recalls. But he knew: By going down the road less traveled, he was positioning himself to jump ahead. And jump he did. Barrack became a powerful middleman, and over 4½ years did tens of millions in deals for the princes, who collected rich commissions. Barrack himself made just $200,000 during his stint in the desert kingdom. "It was indentured servitude," he jokes. "A great education, and highly unprofitable."
But the education was priceless. In 1976, Barrack got a desperate call from Lonnie Dunn, a Texan who had bought a vast plantation in Haiti. Dunn planned to build a giant refinery there, but oil prices had jumped, putting his deal in peril. His one way out: Saudi Arabia was willing to sell its crude at a deep discount to certain poor countries--but at the time, Saudi Arabia had no contact at all with Haiti. That's where Barrack came in. Barrack's princes said they could arrange to have the kingdom grant the discount to Haiti; all they needed was for Haiti to reciprocate by extending diplomatic relations and most-favored-nation status to Saudi Arabia.
So Barrack and Dunn journeyed with the two princes to Haiti, where they had arranged an audience with Jean-Claude "Baby Doc" Duvalier, the Haitian dictator who'd taken over from his notorious father in 1971. At the palace, where the rotund Baby Doc perched on a throne, Barrack pitched the virtues of the deal. In the middle of his appeal, Baby Doc interrupted. "Can I try on the watch?" he asked, referring to a diamond-studded, $200,000 Piaget timepiece one of the princes was wearing. The prince agreed. When Barrack wrapped up, Duvalier had another question: "Can I keep the watch?" Baby Doc got the Piaget and opened the door for Saudi oil to come to Haiti. Dunn soon sold the land to the princes, who flipped it a few months later for an $8 million profit.