THE “COLFIN” IN COLFIN AI-CA5 LLC stood for Colony Financial, a real estate finance company that had been created after the housing bust by Southern California billionaire Thomas J. Barrack Jr. to “acquire, originate, and manage a diversified portfolio of real estate debt instruments.” More than three hundred limited liability companies incorporated in Delaware bear the “ColFin” prefix. Between 2009 and 2012, these companies purchased everything from bad debt originated by failed banks in the Mid-west, to a delinquent loan on a single Arizona office tower, to a partially developed master-planned community in California, to a bundle of bad mortgage loans in Germany.1
But Barrack’s big play was saved for the American Dream itself. By the time ColFin AI-CA5 LLC purchased Sandy’s family home, his company had bought up 8,326 houses across the Sand Belt and Sunbelt: California, Arizona, Texas, Florida, Georgia.2 As wages stagnated and the economic recovery lagged, he kept buying. By the beginning of 2016, his company owned a staggering 30,000 homes.3
Sandy didn’t know any of this. Barrack’s name wasn’t on any of the court documents, legal notices, or the lease presented by the property managers who arrived at her door. I was able to connect these LLCs to him only by examining hundreds of pages of documents on file with the US Securities and Exchange Commission (SEC) and the Delaware Division of Corporations. But while Barrack didn’t take the time to introduce himself to tenants or local officials, he was more than happy to crow about his purchases to investors in keynote speeches at business conferences. “It’s the greatest thing I’ve ever done in my professional life,” Barrack, then sixty-five, told a lunch crowd at a real estate conference at the University of Chicago in November 2012. Pacing the stage like a motivational speaker, he regaled the audience with stories of the “twenty-one-year-old kids with Bluetooths” that he’d sent out to county courthouses with “bags of cashier’s checks.” Barrack said he was providing opportunity for families like Sandy’s, whose wealth had been destroyed by predatory loans and aggressive foreclosure practices. They would rent from him, he said, because they “had been humiliated by this process and were looking for options.”4
Barrack went on to explain, “We’re buying so inexpensively,” and managing the houses was cheap. “I can’t get a plumber to come to my house for fifteen hundred dollars, and we retrofit many of these houses for fifteen hundred total.” It was easy—like managing a chain of franchise businesses. “How do you manage Wendy’s? How do you manage McDonald’s? How do you manage FedEx? How do you manage Kinkos?” he asked rhetorically.
“This is my investment philosophy,” he told the friendly crowd. “You walk into a jungle where no one else wants to be, and you swing and you fight and you bite, and eventually, if you’re successful, they’re all swinging with you, and then you have to move to another jungle.” At the conclusion of Barrack’s keynote address, the audience of real estate investors put down their forks and gave him a rousing ovation.5
IN ALL THE ways that Steve Mnuchin, J. C. Flowers, and John Paulson exemplify the hedge fund managers of the Upper East Side, Tom Barrack is the consummate Southern California money man. He simply oozes Los Angeles. Tall and tan, with a shaved head and a muscular build that comes from regular time with a personal trainer, he was sufficiently fit that, in 2010, at age sixty-three, he was unafraid to be photographed shirtless on a yacht. Barrack presents himself as a Renaissance man—riding the waves and growing Bordeaux wine grapes at his horse ranch northeast of Santa Barbara, where he raises polo ponies and hosts an annual polo tournament.
“Oftentimes people say what is the connection between polo and wine?” he says softly in the promotional video for his winery, Happy Canyon Vineyard, backed by the gentle trills of a flute. “And there are several, but the most important one is stewardship. The ingredients that are involved in turning out great polo ponies and, as a consequence, great polo teams, is the same kind of commitment, dedication, and focus that’s required to produce great wine.”6
One of Barrack’s favorite aphorisms is that a great businessman “befriends the bewildered.” At the time his company bought Sandy’s family home, he was perhaps best known as the man who’d “saved” Michael Jackson’s Neverland Ranch from foreclosure. Barrack didn’t know the King of Pop, but he and Jackson were neighbors in Santa Barbara County; Neverland’s property line ran right up to Barrack’s ranch. Another thing they had in common: Jackson’s business manager at the time, Tohme Tohme, was also a former consultant to one of Barrack’s companies. Jackson hadn’t worked for years, when, in May 2008, a private equity firm called Fortress Investment Group, which held a loan against Neverland, was poised to take the property from the delinquent pop star. At Tohme’s request, Barrack flew to Las Vegas, where Jackson was living at the time. In his book Michael Jackson Inc., Forbes reporter Zack O’Malley Greenburg writes that Barrack agreed to buy Fortress’s note for $23 million on the condition that Jackson begin performing again. “Even if it’s you making an appearance on a late-night show and singing a song. Even if it’s you doing one two-day appearance at a Vegas show,” it would be enough, Barrack said. “Something that shows you’re still Michael Jackson, that you still have that capability, that you’re still coming back.” Otherwise, Barrack explained, “I have the names of five bankruptcy lawyers, and I suggest you get ahold of them as fast as you can, because that’s where you’re going.”7
Jackson agreed to perform, and Barrack wrote a check for the $23 million,8 preventing Fortress from foreclosing. It wasn’t an act of charity. The partnership agreement they signed gave Barrack’s company the right to manage the property and increased his company’s ownership stake in the ranch with every dollar it spent.
On June 25, 2009, just a year after Barrack and Jackson executed the deal, Jackson died of a drug overdose. As of this writing, Barrack was seeking to sell Neverland for $67 million,9 three times what he originally put in. Because an LLC now owns the ranch, it’s unclear how much of the property Barrack owns—possibly all of it.
IN HIS SPEECHES and interviews, Barrack doesn’t present himself as a vulture capitalist. Instead, he places his success as part of the great American narrative. His grandfather, Joseph Barrack, immigrated to the United States from the Beqaa Valley of Lebanon at the turn of the twentieth century, entering the country through Ellis Island as a child. “I often tell my children,” he said in one interview, that America is a special place, a country where in two generations his grandfather “can leave in the belly of cargo ship going to nowhere, and I can come back in the cabin of my own airplane.”10
By 1910, Joseph had headed west, settling in the tiny Front Range community of Las Animas, Colorado. There, census records show, he was surrounded by an ethnic rainbow of immigrant railroad workers and coal miners. At first, Joseph lived in a rooming house with a Greek barber and a Japanese pool hall manager. He opened a bakery, and met and married Tom’s grandmother, Mary, whose family hailed from Missouri. In 1915 Mary gave birth to Tom Barrack’s father, Thomas J. Barrack Sr.
By the time of Tom Sr.’s birth, conditions in Las Animas had become tense. A series of deadly accidents in the coal mines, which were the main source of employment in the area, had transformed the region into a center of labor agitation. Lingering tension between the United Mine Workers of America and coal company owners erupted into the violent Colorado Coalfield War in 1913. After thousands of mine workers went on strike seeking better wages and working conditions, Colorado’s governor sent in the National Guard on the side of the bosses. Habeas corpus was suspended, strikers were jailed en masse and tortured, while a demonstration of miner’s wives and children was met with a cavalry charge. But the workers didn’t give in, and the strike dragged on for months until April 20, 1914. On that day, nicknamed the “Ludlow Massacre” by miners, the National Guard attacked a tent colony the strikers had set up north of the mine. At least thirteen women and children were killed in the assault.11
Though the Census Bureau shows that Joseph was still running his bakery in Los Animas in 1920, by the end of that decade, he and his family had relocated to Los Angeles. These were boom times for LA, with the birth of Hollywood and the rapid expansion of the aviation industry. The Barrack family settled in a brand-new Spanish-style bungalow off Melrose Avenue near the La Brea Tar Pits. Building documents on file with the city of Los Angeles show that their house was nearly identical to the one that Sandy’s grandparents, Percy and Ella Hickerson, lived in a few miles to the west: the typical Southern California home eventually seared into the nation’s imagination through classic Hollywood movies and television shows.
LIKE PERCY AND Ella Hickerson, Joseph Barrack wasn’t in LA for the glitz and glitter. He took a job as a manager at a dry goods store, and he put his son, Tom Sr., to work. Tom Sr. never went to college, but he saved money and eventually made the transition from worker to owner, building a small fortune as the proprietor of three Southern California grocery stores. In 1952 Tom Sr. and his wife, Mamie Fadel, bought a home in Culver City, on the west side of Los Angeles, south of Beverly Hills, a few miles east of the beach. There they raised two children, Tom Jr. and his sister, Carole.
“My father was an incredible man,” Barrack recalled. “He lacked the financial education and discipline but was by far the smartest man I’ve ever known. He never lost his humility or footing, and never allowed me to lose my humility or footing.”12
But while Barrack’s father and grandfather lived the American Dream, working hard, playing by the rules, and leaving the next generation better off than the one before, Tom Jr. set off on a different course, playing by his own rules. He didn’t want to be slightly better off than his father. He wanted to be rich.
This different set of values is apparent when you compare the composition of Tom Barrack’s family with his father’s. While Tom Sr. was married to the same woman for sixty-seven years,13 Tom Jr. has wed three times. Each time the age gap between him and his bride was larger than before. In 2014 Tom was sixty-seven when he married his third wife, thirty-seven-year-old Rachelle Roxborough, at his 1,200-acre ranch. When they wed, the couple already had two preschool-age children together. Two years later, in 2016, she filed for divorce. To Barrack, there was likely nothing odd about this series of events, as such arrangements were typical of his social circle. Among his closest friends and frequent business partners was another billionaire with children that span generations, himself decades older than his third, much younger, wife.
TOM BARRACK’S PARENTS tried to instill conservative values in their son. They sent him to Loyola High School of Los Angeles, an all-boys Jesuit school where students wore suits and ties to class. It was 1965. The Rolling Stones and Beatles were topping the charts, but at Loyola, the students were stuck in a previous era. The short-haired editors of the school yearbook declared “leadership” to be the class theme and asked FBI Director J. Edgar Hoover to contribute the foreword.
“Never in the course of history has the youth of this Nation been faced with a future that has held such challenge,” wrote Hoover, whose agents had been spying on the civil rights leader Dr. Martin Luther King Jr. for a decade by then. “In the years to come, you who are the leaders of tomorrow will make decisions that will be a measure of your strength and ability to keep America free. Discipline, that virtue which is the wellspring of order, must be learned through self-sacrifice and devotion to duty.” He added, “In such individuals, imbued with precepts which guided the founders of our Republic in the establishment of a birthright unmatched in history, will flourish the dynamic standards which are vital in leading America to new pinnacles of achievement and progress.”
Barrack was a popular kid. He played football and was elected to student government. As student body secretary, he headed the dance committee, and organized a sock hop, where boys and girls were able to mix. It was “a swinging success,” the yearbook said, which “immediately became as much a part of Loyola’s campus life as its oldest traditions.”
Barrack stayed close to home for college, studying business and playing rugby at the University of Southern California. On the rugby field, he was famously tough, entering into the season finale against Stanford University with a broken nose; by the final whistle, he also had a broken left ankle, separated shoulder, and torn right knee. The team’s captain, Ed Todd, remembers Barrack as “a wild man player whose heart and crazy head made him better than his athletic talent. . . . There are certain guys who, when they get into the pitch, their eyes change to wolf eyes, and they really like contact. That’s what they’re there for. Tom was one of those guys.”
Barrack didn’t party with the team, though. After most matches, Todd and Barrack saluted their opponent and then went their separate ways. Todd, a retired lawyer who now works as a referee for USA Rugby, which officiates the sport at the high school, collegiate, and national levels, told me that off the field Barrack was jovial and kind, “like a high school teacher. He had a certain warmth that was easy to be around, to have a joke with him. He was a guy who always seemed to be laughing and happy, and that’s the kind of person who seems to be a successful high school teacher.” Instead, Barrack went on to earn a law degree from another private academy in Southern California, the University of San Diego. Then, after graduating from law school, his world started to broaden. His ambition became clear.
His first job after law school was at the law firm of Herbert W. Kalmbach, President Richard Nixon’s personal lawyer. In 1972 the firm sent Barrack to Saudi Arabia to negotiate a contract for a construction company. He ended up the squash partner of a Saudi prince, eventually reviewing deals for the royal family itself.14 Barrack was more than a lawyer. He was a deal maker. At one point, at the request of one client, a Texas oilman, he helped open diplomatic relations between Saudi Arabia and Haiti, which was then ruled by the despotic “president for life” Jean-Claude “Baby Doc” Duvalier.15
Throughout these formative years, Barrack blended into the background, rarely garnering public notice. But this changed in 1984, when a curious land deal involving Ronald Reagan’s attorney general, Ed Meese, led Congress to appoint a special prosecutor and haul Barrack in to testify before the US Senate Judiciary Committee. The scandal, which resulted in lengthy congressional hearings, seems overly complicated and incredibly minor by today’s standards, but it was a big deal at the time. An examination of what happened gives a glimpse of how the young Barrack operated.
Meese was a longtime associate of Reagan’s, dating back to the Gipper’s time as governor of California, but he was by no means a rich man. When Reagan became president in 1981 and Meese moved to Washington to work in the administration, the new counselor to the president was desperate to sell his Southern California home. The problem was that Meese couldn’t find a buyer willing to pay his asking price of $300,000. So, Barrack simply gave the buyer of the house $60,000 (about $175,000 in today’s money), which was then paid to Meese as part of a higher purchase price. Barrack also charged nothing—neither a finder’s fee nor a commission—for arranging the deal.
Soon after, Barrack was appointed deputy undersecretary of the Interior. Democratic senators raised a fuss, claiming that he had essentially bought his high-ranking position, but the independent council found no criminal wrongdoing. The director of the Office of Government Ethics also cleared both him and Meese, saying Barrack’s “primary motive” in subsidizing the sale of Meese’s home “was to help his friends by bringing them into a good business venture.”16
Documents released by the Ronald Reagan Presidential Library reveal Barrack’s connection to Meese was far from his only avenue to the appointment. In October 1982 a prominent Los Angeles socialite and Republican fund-raiser, Margaret Brock, wrote to White House deputy chief of staff Michael Deaver to recommend “a relatively new friend here in California” who had bought a Bel Air home “originally owned by my parents.
“Tom Barrack has completely—and beautifully—restored the house and grounds,” she said. “During and after the construction, my sister, Elizabeth Handley, and her husband, Joe, and I have enjoyed several guided tours and luncheon at the house.” Brock went on to praise Barrack “as an active political contributor” to Republican causes who had already met with Meese and Helene von Damm, Reagan’s special assistant for personnel. Brock suggested a meeting in Washington or at Barrack’s ranch in Santa Barbara County, where he was “a neighbor of President and Mrs. Reagan.
“I would be so pleased, Mike, if you and Tom could meet,” she wrote.
“Dear Margaret,” Deaver replied on White House stationary. “We haven’t forgotten Tom Barrack. Helene is trying to find something for him, and she should be in touch soon.”17
BARRACK DIDN’T LAST long in Washington. By 1985, he was back in the world of real estate. It was then that Barrack met Donald Trump, who would become his close friend for the next thirty-plus years. Fittingly, their relationship began with Barrack getting the better end of a deal. That year, Barrack got Trump to overpay for the New York department store chain Alexander’s. Three years later, he enticed Trump to fork over $410 million for Manhattan’s landmark Plaza Hotel, right before the hotel market collapsed. (Trump subsequently lost both properties to creditors.)18 Despite having been fleeced, Trump was gracious: “A totally brilliant guy” is how the brash New Yorker described Barrack to BusinessWeek.19
Over the next decade, Barrack would help bail out one of Trump’s struggling casinos in Atlantic City20 and buy a condo on the fourteenth floor of a Trump property on Central Park South,21 one block from the Plaza. When Donald’s father died in 1999, they sat together next to Fred Trump’s casket.22 “Trump is one of the brightest businessmen I ever met,” Barrack told USA Today without a hint of irony. “He doesn’t let emotion drive him on any decision.”23
It was also shortly after Barrack met Trump that the Californian found his true calling. For the last thirty years, he’s been one of America’s most prolific “contrarian investors”—meaning that he makes money by buying assets when everyone else thinks they are garbage and then flipping them a few years later when those assets are worth many times more—especially if the government is on the hook.
His first big play came during the savings and loan crisis. Working with Texas financier Robert Bass and then-upstart investor David Bonderman, he bought up a portfolio of bad loans held by American Savings and Loan, a failed California thrift that had been taken over by the government. For taxpayers, the American Savings deal turned out to be one of the most expensive bailouts of the S&L debacle, costing at least $4.8 billion in government subsidies.24 For Barrack and his partners, though, all those subsidies meant they couldn’t lose. After buying the thrift’s bad loans, they turned around and sold them back to the same investors who had owned them before the crisis, turning a $400 million profit.
But that was at the beginning of the S&L bust, and Barrack knew there would be more opportunities. “He kept saying to me, ‘The government will have to take over all these loans,’” Bill Rogers, then one of Robert Bass’s partners, told Fortune magazine in October 2005. “He said we need to be raising money to get ready for an incredible buying opportunity.”
In 1990 Barrack formed Colony Capital, the first vulture fund for S&L debt. “His timing was perfect,” reporter Shawn Tully wrote in the Fortune profile.25 Thrifts were failing so fast and furious (by the end of the crisis, 747 savings and loans would fail) that in June 1990 the newly formed Resolution Trust Corporation began pooling the S&Ls’ bad loans and foreclosed real estate and selling them in bulk, usually at a steep discount.26 Barrack entered this market with a big splash, buying $1.1 billion in assets for just $510 million.27 Over the next four years, he bought package after package.
“It turned out even better than American Savings had,” Tully wrote. “Owners who were eager to keep their properties bought back their debt for 70 cents or so on the dollar. Any loans Barrack couldn’t unload, he bundled together and sold on the public markets as mortgage-backed securities.”28 As the real estate market recovered, Barrack sold off properties to large real estate investment trusts—basically mutual funds for property speculation, which gobbled up his office buildings and shopping centers. Because he had bought the buildings off the government for a song, it was easy to make a profit.
Like the sale of First Gibraltar to Revlon magnate Ron Perelman, these deals were roundly criticized in Congress. An official history of the crisis, published in FDIC Banking Review, noted that by selling large pools of debt in bulk, the Resolution Trust Corporation created “a lack of competition among bidders,” handing “‘sweetheart deals’ to large investors,” and potentially hurting local real estate markets. But “such concerns were largely trumped by the desire to get assets moved” off the government’s books quickly, the Review said.29
For Barrack, this was like hitting the lottery. He heaped praise on the government officials who enriched him by selling so low. “They’ve done an incredible job,” he told American Banker in 1994.30 And why not? While the nonpartisan Government Accountability Office found the Resolution Trust Corporation had lost $87.9 billion in taxpayers’ money by the end of 1995,31 Fortune reported that Barrack reaped a profit of $2.5 billion.32
Barrack appeared on the cover of that issue of Fortune under the headline “The World’s Greatest Real Estate Investor,” with an image of a gold house reflecting in his aviator sunglasses. In October 2005 the housing market was exploding, but Barrack saw something different. The overall message of the article was simple. Tom Barrack, a businessman who had made billions of dollars off an earlier banking catastrophe, saw a housing bust coming.
“The World’s Best Real Estate Investor Has Made Billions in the U.S. Market. Now He’s Cashing Out,” the article’s subhead read. “Should You Cash Out Too?”33 Most Americans didn’t cash out. They continued to buy—in part because of the high-pressure tactics of salesmen who promised that home prices would go up forever. The housing bubble continued to build for two more years until it burst spectacularly in 2008. Millions of Americans lost their homes and their wealth. The US economy teetered on the verge of another depression. But Tom Barrack was sitting pretty. He had pulled his money well before the crash. Now he was ready to buy.