Tom Barrack: Courting controversy

What’s the king of real estate doing backing a Hollywood film studio?

Earlier this week Tom Barrack, co-founder of real estate giant Colony Capital, made a deal outside of the realms of his day-to-day.

Colony, which is better known for transactions like taking over Goldman Sachs’ $1.3 billion hotel portfolio and acquiring the headquarters building of oil and gas company Statoil in Norway, provided an “immediate capital infusion” to The Weinstein Company. The film company was founded in 2005 by brothers Bob and Harvey Weinstein, the latter of whom had garnered at least 40 public allegations of sexual harassment, assault and rape as of press time. Colony also said it was exploring the acquisition of some or all of TWC’s assets.

Harvey Weinstein stepped down from TWC in light of the accusations against him, which were first reported by The New York Times and The New Yorker in October. As of press time, Bob Weinstein was still running the company.

Here is a quick recap of Barrack’s investment career and how this deal fits in.

Who is Tom Barrack?

In a nutshell, he’s a billionaire real estate rainmaker with a colourful history.

“He’s brokered diplomatic deals, played squash with a Saudi prince, served in the administration of a US president and worked for the attorney of another US president,” Evelyn Lee, the news editor at sister title PERE wrote in a profile of Barrack in the summer of 2015. “He also heads a movie company and hangs out with actor Rob Lowe.”

To those two presidents – Ronald Reagan and Richard Nixon – we can now add President Donald Trump. Barrack endorsed Trump – a close friend and frequent business associate – and supported him financially early on in his campaign. He was subsequently chosen to chair Trump’s Inaugural Committee.

Where does Colony Capital come into all this?

Barrack founded Colony Capital in 1991, receiving backing through a club fund that included GE Capital, The Cargill Foundation, Merrill Lynch, The Broad Foundation and two family offices for the firm’s first transaction.

As PERE says: “The following year, Colony raised $395 million for its first commingled institutional opportunity fund, Colony Investors I. During those years, Colony converted troubled assets into ones that could be traded on Wall Street through REITs and securitisations, says Barrack.”

Colony expanded to Europe in the mid-1990s to capitalise on the distressed opportunities beginning to materialise there, and moved into Asia to buy assets from troubled banks in Japan, Korea and Taiwan.

In April 2015, Barrack took the company public, rolling up Colony Capital’s business into the publicly-traded mortgage real estate investment trust it managed, Colony Financial, and in 2016 merged with NorthStar Asset Management and NorthStar Realty Finance.

So what’s a distressed real estate expert doing injecting cash into a troubled Hollywood studio?

Over the years, Colony has expanded its investment scope outside of the realms of distressed real estate debt. These investments include French professional football team Paris Saint-Germain, acquired in 2006 and subsequently sold to the Qatar Investment Authority; First Republic Bank, acquired together with General Atlantic and the bank’s management from Bank of America for $1.86 billion in equity in July 2010; Station Casinos, acquired in a $9 billion public-to-private in November 2007; Michael Jackson’s Neverland ranch; and – most pertinently – Miramax Films and its film library.

The Weinstein brothers founded production and film company Miramax Films, which they then sold to the Walt Disney Company and left to start TWC in 2005. In 2010, Barrack purchased Miramax for about $660 million through a separate account, then sold his stake in the firm last year.

Have these deals been successful?

Mixed. In the interview with our PERE colleague, Barrack called First Republic – which returned 3x equity when the firm took it public – “one of our best investments”. On the other hand, Barrack called the $9 billion Station Casinos public-to-private the “worst investment ever”. The company declared bankruptcy in 2009, and the deal led to reported write-downs of approximately 60 percent in the $4 billion Colony Investors VIII, although it’s understood more than a third of that loss has since been recouped.

What do we know about the investment in TWC?

On Monday the two companies issued a joint statement in which TWC said it had entered into a preliminary agreement with Colony to “provide an immediate capital infusion” into the business, and that the pair had entered a negotiating period for “a potential sale of all or a significant portion” of TWC’s assets.

TWC board member, Tarak Ben Ammar, said the company believes “Colony’s investment and sponsorship will help stabilise the company’s current operations, as well as provide comfort to our critical distribution, production and talent partners around the world”.

“Colony’s successful experience and track record in media and entertainment will be invaluable to the Company as we move forward,” he said.

For his part, Barrack said Colony believes TWC has “substantial value and growth potential”.

“We will help return the Company to its rightful iconic position in the independent film and television industry,” he said.

Which investment vehicle is Colony using for its investment in TWC?

Colony has not specified which investment vehicle it is using for the cash injection or potential acquisition of the company’s assets. It is also not clear whether Colony is seeking to buy debt or equity in this deal. However, the Miramax transaction was made using a separate account, in which one of the investors was the aforementioned Rob Lowe.

What’s the play here?

At this point, it’s too early to tell, firstly, how much and which parts of TWC Barrack would be interested in acquiring (and at what price), and, once acquired, what he intends to do with them. An analysis in The New York Times on Tuesday takes look at the embattled studio’s assets, but as the newspaper rightly points out, any of the assets Barrack likes the look of will likely be available at a fire sale price.