tinyurl.com/7zeh9 -> money.cnn.com/2005/10/21/news/newsmakers/barrack/index.htm?cnn=yes
Shawn Tully, Fortune Senior Writer NEW YORK (Fortune) - Tom Barrack, arguably the world's greatest real esta te investor, is methodically selling off his US real estate holdings a s prices drive the market to nosebleed levels. He likens the current real estate market to a game of polo. "I feel totally safe playing polo on a field full of pros," says the bron zed 58-year old. "But when amateurs are all over the field, someone can get killed. They charge after every bal l and don't know when to hold back." "There's too much money ch asing too few good deals, with too much debt and too few brains." The am ateurs are going to get trampled, he explains, taking seasoned horsemen, who should get off the turf, down with them. Barrack may be an amateur at polo, but when it comes to judging markets, he's the ultimate pro. Arguably the best real estate investor on the planet, he runs a $25 billi on portfolio of trophy assets, from the Raffles hotel chain in Asia to t he Aga Khan's former resort in Sardinia to Resorts International, the la rgest private gaming company in the US Barrack's Colony Capital, one of the largest private equity firms devoted solely to real estate, has racked up returns of 21 percent annually sin ce 1990, handing investors, chiefly pension funds and college endowments , 17 percent after all fees. Barrack bought the Fukuoka Dome, Japan's Yankee Stadium, in part because he calculated that the titanium in the retractable roof was worth as muc h as the purchase price. His strategy is to buy classy but neglected properties anywhere in the wo rld where prices are low. Then, he'll pour in capital to fix them up, an d resell in them in five years of so with their pedigrees fully restored . Says his friend Donald Trump: "Tom has an amazing vision of the future , an ability to see what's going to happen that no one else can match." Right now, Barrack's view of the US market couldn't be clearer: It's a great time to sell, and a terrible time to buy. In fact, he sees signs of the tech bubble mentality in real estate. Too m uch capital is chasing real estate, he explains, with hedge funds, priva te equity groups, and rich investors all bidding on the same properties. "They've driven prices to the point where the yields on high-quality pr operties are like the returns on bonds, around 5 percent or 6 percent," says Barrack. Barrack thinks the catalyst will b e a trend few others are talking about, a steep rise in the price of bui lding materials and labor. "Construction costs have spiked 20 percent in the past nine months," he says. The reasons: Shortages of labor and mat erials like lumber because of the building boom, and increases in the pr ice of oil, needed to produce everything from plastic piping to insulati on to shingles. The slump will show up first in speculative hot spots like Miami and Las Vegas, he says, where condo developers are preselling their projects for what looks like big profits. When they actually build the units over th e next year or two, he predicts, they will end up spending more then the units are now selling for. At that point, says Barrack, the developers will try to raise prices. "They will either sue the developers to get the original price or take their deposits back and walk away." The developers will then put the units back on the market, and the glut of vacant condos will drive prices down. "It's the busted d eals caused by construction costs that will cause the turn in the market ," he says. So Barrack is buying just one type of property in the US: Casinos. And in contrast to most gaming titans, he's doing it on the cheap.
click here Colony paid just $280 million for the 3000 room Las Vegas Hilton in 2003, one-tenth of what Steve Wynn paid to build his new casino, which has ro ughly the same number of rooms. The reason Barrack likes casinos is that he's licensed to operate casinos in all the major markets, while most other private equity firms and oth er financial players don't have licenses. Hence, they're locked out of t he market, and can't bid against Barrack. For Barrack, casinos are a saf e, exclusive preserve, far from the frenzied melee that's makes every ot her part of US real estate such a dangerous place to play. But when the din subsides, and the amateurs depart, look for Barrack to ride back in, mallet cocked, r eady to play again.
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