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Real estate vulture Colony Capital set to launch REIT IPO

September 23, 2009 |  7:00 am

Colony Financial Inc., a new real estate venture formed by L.A. property and private-equity mogul Tom Barrack, hopes to raise $500 million $250 million from the public today to take advantage of potential bargains in the crumbling commercial real estate market.

[UPDATE: Colony today cut the size of its planned IPO in half, and rival Apollo Commercial Real Estate Finance did the same for its IPO.  As noted below, the market seems to be choking on an excess of these deals.]

The real estate investment trust, which will be managed by Barrack’s Colony Capital, is one of a growing number of funds formed to buy up distressed mortgage debt as the residential housing crisis bleeds into the commercial property market.

Barrack, 62, launched Colony Capital in 1991. The privately held firm has since invested tens of billions of dollars in commercial properties worldwide using its own capital and money from well-heeled investment clients. The firm got its start buying assets from the Resolution Trust Corp., which disposed of properties seized from failed savings and loans.


With Colony Financial, Barrack is inviting average investors to join him. The REIT, which will earn management and incentive performance fees for Barrack, hopes to price an initial public stock offering of 25 million 12.5 million shares at $20 each. It will trade on the New York Stock Exchange under the symbol CLNY.

In the prospectus for the stock deal the trust says it plans to invest in commercial property mortgage loans, including troubled debt. It foresees a "vast inventory of commercial real estate-related assets that needs to be recapitalized" as hard times slam property owners.

Those hard times also have devalued Colony Capital’s portfolio, particularly its extensive casino and hotel holdings.

Though no one questions Barrack’s long-term success as a vulture investor in real estate, one immediate challenge for the Colony Financial REIT offering is that some of Barrack’s rivals also are rushing into the distressed-mortgage market with publicly traded REITs -- creating a possible short-term glut of such deals.

CreXus Investment Corp., a REIT formed by Annaly Capital to buy commercial loans, went public last week at $15 a share. The stock has fallen for four straight sessions, to $14.50 on Tuesday.

Apollo Commercial Real Estate Finance, a REIT IPO planned by financier Leon Black’s Apollo Group Management, hopes to raise $400 million $200 million this week by selling 20 million 10 million shares at $20 each. Other similar deals in the pipeline include Foursquare Capital Corp. and Ladder Capital Realty.

Barrack may be best known recently for his ties to the late Michael Jackson: Colony Capital bought the mortgage on Jackson’s Neverland Ranch when the pop icon defaulted on the loan in 2008. Barrack also helped persuade Jackson to launch his comeback tour.

-- Tom Petruno

Image: Tom Barrack on the cover of Fortune magazine in 2005.