Colony targets distressed opportunities

Colony Capital founder and chairman Tom Barrack has lined up more than $1 billion in equity to start buying distressed debt and property companies as the firm searches for the bottom of the market.

Colony Capital has quietly lined up more than $1 billion (€640 million) in equity to take advantage of the current market dislocation.

People familiar with the matter have confirmed to PERE that founder and chairman Tom Barrack has approached longtime Colony backers for the latest offering, without distributing any formal marketing material.

The opportunity fund, which is believed to have a hard cap of $2 billion, is expected to start investing in distressed property debt and operating companies with strong real estate components in the middle of the year, when Barrack believes valuations will be near their low point. The fund is expected to close in June.

Investors to the latest fund reportedly jumped on board owing to Barrack’s reputation for accurately calling market cycles. People familiar with the matter told PERE, Colony found the current fixed income market “attractive.”

In his latest “Chairman’s Corner” newsletter on Colony’s website, Barrack predicted commercial real estate would continue to suffer from the credit crisis, with commercial loan spreads continuing to widen and North American developers suffering a string of defaults. In housing, he forecast, the “real problems [were] just beginning and [there is] no clear solution in sight.”

He went on: “The best place to prospect for ‘long’ emerging opportunities is most likely at home. It contains all the ingredients of an intriguing opportunistic investment: volatility, lack of transparency, confusion, over-leverage abound, lack of homogeneity in products, long-term stability, and government intervention.”