Roughly $8 billion have been transferred from the Middle East and North Africa into the care of Tom Barrack, the founder and chief executive of real estate private equity firm Colony Capital. Grandson of Lebanese immigrants to Los Angeles, Barrack founded the company in the City of Angels in 1991 and now manages $25 billion of assets. Colony is the fourth-largest real estate private equity (PE) firm in the world.
To lure investors’ capital, 25 percent of which comes from the MENA region, Colony is diversifying its investment strategy as it adds distressed debt and media investments to its abundance of real estate projects.
Since 2008, Colony has been acquiring distressed loans from, among others, the United States’ Federal Deposit Insurance Corporation, which has been buying out failed banks and selling their assets. Colony holds about $7.5 billion in distressed debt.
Another $5 billion are deployed in hospitality projects and $2.5 billion are in the residential real estate sector. The remaining assets are spread between investments in offices, industrial and retail projects such as French hypermarket Carrefour and media — most prominently, the film distributor Miramax.
Barrack’s affiliation to Lebanon has not only led him to sit on the advisory board of the non-profit organization LIFE (Lebanese International Finance Executives), which aims to channel the influence of Lebanese financial executives for the benefit of the country, but also to choose Beirut as the regional headquarters for the firm’s Middle East operations. With Barrack’s old friend Sylvio Tabet heading a team of four, Colony’s Beirut offices, which opened in 2004, cater to a variety of clients in the region from sovereign wealth funds (SWFs) to pension funds to endowment funds to ultra-high-net-worth individuals to institutional clients such as Lebanon’s Optimum Invest.
A darling of gulf funds
Regional sovereign wealth funds (SWFs) feature as partners in Colony’s most prominent deals. Qatar’s wealth funds, in particular, have proven to be steadfast partners of Colony and to serve as reliable exit options for the firm.
The Fairmont Raffles Hotel Chain, for instance, is currently owned by a consortium that includes Colony Capital and Qatari Diar, a SWF. Qatari Diar, a 35 percent stakeholder in the chain, is reportedly in talks to acquire Colony’s stake of 20 percent.
Colony’s MENA regional manager Sylvio Tabet
When Colony sold its controlling share in football club Paris Saint-Germain in 2011, it picked SWF Qatar Investment Authority (QIA). Last year, Colony sold its 100 percent stake in Sardinia’s Smeralda Holding, owner of luxury hotel resorts on the Italian island, for an undisclosed amount to Qatar Holding, a QIA subsidiary.
And when Colony started venturing into media, it yet again turned to QIA along with California-based Tutor Saliba Corporation, a contracting and engineering group co-founded by Nassib Saliba, also of Lebanese origin, to acquire film distributor Miramax from Disney in 2010, giving it access to 700 film titles.
While media accounts for just 5 percent of Colony’s assets, Tabet, Colony’s regional manager, believes it is a sector worth betting on. He credits major upheavals in the industry for “creating a lot of unique opportunities for equity investors.” Digital media is disrupting traditional media, media conglomerates are divesting their non-core assets and banks are withdrawing from non-core lending, he says.
M.E.N.A. money, foreign investments
“Given the overall uncertainties and changes in Lebanon and the region, investors… have been looking for overseas opportunities and have shown a growing interest in the US market,” says Tabet.
While Arab investors feature among Colony’s roster of clients, the region does not appear on its investment list — 90 percent of its capital is deployed in the US.
Tabet stresses that Colony is open to making investments in the region, but the firm has so far completed just one: it acquired in 2007 a 55 percent stake in Turkey’s Mars Entertainment Group, an entertainment, cinema and sports chain, which it exited three years later generating an internal rate of return of 26 percent. The only other regional investment that Colony came close to sealing was a $2 billion contract for the development of a tourism project in Morocco. The project fell through, however, and as talks over legal repercussions are still ongoing, Tabet could not comment on this issue.
While Tabet sees investment opportunities in Turkey, Colony’s eyes are fixed on the West, and the US in particular, where they foresee lucrative returns. To realize them, they will continue to venture hand in hand with their Middle Eastern partners.