Vici
Proud Member
- Joined
- Apr 18, 2009
- Messages
- 2,758
- Points
- 48
Tom Barrack, a billionaire investor who made his fortune in real estate, has discovered a market in distressed celebrities. With Neverland Ranch and Miramax under his belt, he’s now on a shopping spree—and bringing along his buddy Rob Lowe.
You’ll see why Michael called this place Neverland,” says Tom Barrack, the newest owner of Michael Jackson’s Neverland Valley Ranch. Barrack is a 63-year-old billionaire with a gleaming shaved head, summer-in-Sardinia tan, personally trained muscles, and sockless tasseled loafers. He is sitting on the lawn beside the Tudor-style, panic-room-equipped main house, near a gnarled oak tree with steps winding up to the perch where Jackson wrote Bad.
This, the manicured park with the giant floral clock and movie theater featuring isolation boxes for immunocompromised children—default B-roll for all TV coverage of Jackson—comprises just 32 acres. It scarcely hints at the grandeur of the full property, which is nearly ten times that size, with 67,000 oaks and sycamores, the odd rattlesnake and mountain lion, and a former Chumash Indian worship site overlooking a savannah-like plain. “You’ll feel something, which I think was what drove him,” Barrack says of the Chumash site. “And I don’t mean that—I’m not coming from outer space—but you will actually feel it, I promise.”
When Barrack’s private-equity firm, Colony Capital, took over Neverland in November 2008, averting foreclosure, even the groomed portion was going to seed. Jackson, self-exiled after his child-molestation acquittal to places like Bahrain and Las Vegas, hadn’t been home since early 2005. His 275 employees had dwindled to four. The amusement-park rides and steam train—operable only by California’s single licensed steam-train engineer—had been sold off to raise money. The petting zoo’s animals had been removed by animal-rescue groups; the snakes from the reptile barn were, um, released into the wild.
Since then, Barrack’s team has worked steadily to rehabilitate the estate, refinishing the wood floors, relandscaping acres of grass, introducing more swans into the lakes, and repositioning Jackson’s statue of a long-gun-brandishing pirate to scare off coyotes. In the dance studio, a solitary bulb lights a spot worn down by Jackson’s spinning. The elephant barn now houses a labyrinth of walls filled with effusive notes penned by visitors from around the world. The only obvious reminders of Jackson’s complicated legacy are the bronze statues of children at play that dot the estate.
Barrack built his fortune making deals, and in some ways, Neverland began as just another one—a contrarian bet on a troubled asset, an operating business backed by real estate. Only in this case, the operating business was a person. Colony would bail Jackson out of his substantial debt; in return, the firm would assume ownership of Neverland, and Jackson, after a thirteen-year hiatus, would go back to work to generate new revenue. Jackson’s death, before he could carry out a planned comeback tour, turned the transaction into more of a straightforward real-estate play: Colony is fixing up Neverland and plans to sell it, at some point, for a profit. But after doing the Jackson deal, Barrack and his team began to wonder whether they might have stumbled on a whole new class of investment: the distressed celebrity.
Over the past two years, Barrack has been lining up deals that target celebrities and entertainment properties whose value he believes to be artificially depressed. In some cases, that’s because they haven’t yet figured out a way to monetize their assets. But mostly it’s because the investment is, in the classic sense, distressed—individuals like Jackson or Annie Leibovitz whose financial mismanagement has obscured their future revenue potential, or properties like the Miramax film library, which Disney is unloading at a time when no one can agree on what a studio archive is worth. This summer, Barrack created a new $500 million media-and-entertainment investment fund, working with his friend Rob Lowe, who is a partner in the fund. Together they have been on something of a shopping spree—and generating a little tabloid coverage while they’re at it. In one TMZ appearance, a paparazzo’s telephoto captured Lowe and Barrack, shirtless, checking their BlackBerrys on a yacht in the Mediterranean. In a second, the two men were video-ambushed as they entered the Mayfair restaurant C London for dinner with owner Giuseppe Cipriani and Formula One’s Flavio Briatore.
In 2005, Barrack’s grin appeared on the cover of Fortune, beside THE WORLD’S GREATEST REAL-ESTATE INVESTOR, and he got there largely by relying on this maniacal stamina. He launched Colony Capital in 1990, and for fifteen years, it averaged an annual return of 21 percent for its investors. The inaugural Colony transactions mined the S&L crisis by buying packages of bad loans from the FDIC at bargain prices. These deals possessed several of the elements that would characterize Barrack’s deals over the next two decades: They used real estate as collateral; they required intensive hands-on management; and, most important, they ran toward, rather than away from, regulatory complexity. Colony was the first private-equity firm to get a gaming license, for instance. “No one—no one—would go through that Bataan death march,” Barrack says. “So for four years, we had a monopoly, because there’s no other private-equity firm that would go through the licensing process, which is hell.”
Barrack’s turn into entertainment investing began with a visit to Michael Jackson’s home in Las Vegas in 2008. Barrack had received a call from Tohme Tohme, a fellow Lebanese-American who had become Jackson’s business manager. Jackson hadn’t released an album or toured in thirteen years, but he had three significant assets: the Neverland property, the MiJac catalogue of his own music, and the enormous Sony/ATV catalogue, which included, among other songs, most of the Beatles’ oeuvre. Jackson was facing a crisis, Tohme said. The holder of $270 million in loans to Jackson was foreclosing on Neverland and planned to sell it in five days. Would Barrack meet with Jackson? “It’s so not Tom’s thing,” Lowe says. “Getting roped into spending half an hour with Michael Jackson in some weird house is just not on his agenda.”
Somewhat grudgingly, Barrack arrived at Jackson’s fifties stucco rental on Palomino Lane. “Not one blade of grass,” Barrack says. “The house was old and musty.” The 1,000-plus-page Sony/ATV catalogue was on the table between them, and Barrack was quickly won over. “For sure, the guy is an absolute genius,” Barrack says. “He was remembering not just songs but every performance, every date, every script.” When it came to business matters, though, Jackson was lost. He knew only that if Neverland was foreclosed on as scheduled, it would trigger a cascade of financial devastation. For the past decade, he had repeatedly staved off financial reckoning by borrowing. Now he was out of options.
Barrack had a relationship with the loan holder, Fortress, and was able to get an extension to give his Colony team time to crunch the numbers. They concluded that the only way to make a deal work would be for Jackson to start generating new revenue, which meant performing old material. Two days later, Barrack called Jackson. “I told him: ‘Where you are is an insolvable puzzle unless you’re willing to go back to work. If you’re willing to do that, then we can help, but if you’re not willing to do that, it’s just presiding over a funeral.’ ” At first, Jackson demurred. “He really had a hard time with that, and he struggled for about three days. Finally, he calls back and says, ‘You’re right, I’ll do it.’ ”
Colony agreed to bail out Jackson; in return, the firm would take ownership of Neverland and arrange for AEG, the concert promoter owned by Barrack’s friend Phil Anschutz, to stage a comeback. An unforeseen complication arose when Barrack received a call from the King of Bahrain, whom he knew from Sardinia, where Barrack owns much of the Costa Smeralda; astonishingly, Jackson had apparently forgotten that while being hosted in Bahrain, he had signed over the rights to his catalogue to the king’s son. Colony had to buy out that interest. Jackson moved into a gated $100,000-a-month mansion in Bel-Air to prepare for a run of 50 concerts in London that would relaunch his career. Instead, it ended it. He was struggling physically and heavily medicated by a live-in doctor. He died, from a sedative overdose, eighteen days before the first concert.
But in the frenzy of posthumous adulation of Jackson—in those first days, it was hard to find an FM radio station that wasn’t playing “Billie Jean” or “Beat It”—Barrack watched as Jackson’s value was suddenly and spectacularly realized. This Is It, a documentary about Jackson’s preparation for the comeback concerts, grossed $261 million worldwide during its theatrical run, a record for a concert film, and the Jackson estate signed a series of lucrative deals, including a video game and a Cirque du Soleil show.
“What’s amazing,” Barrack says, “is he attained in death what he could never attain in life.” It may be an obvious observation, but it’s one with huge financial implications for a long-term investor. Anyone who had seen past the momentary distractions of controversy and scandal could have identified the intrinsic preciousness of Jackson’s talent and fan base. Colony hadn’t predicted Jackson would die, of course, but it had wagered correctly that, over time, Michael Jackson the asset would outshine its liabilities (and even Michael Jackson the person).
As a rule, Barrack is drawn to distressed situations. One of the adages in a list of “rules for success” that he sometimes distributes to employees is “befriend the bewildered.” And when you start applying the thought process of a vulture investor to pop culture, suddenly the world can seem dizzy with opportunity. Is Lindsay Lohan a drug-addled train wreck or an underestimated future cash machine? What about Mel Gibson? Rob Lowe himself, now a ubiquitous television star, would have made for a profitable distressed investment if Rob Lowe shares had been floated in the late eighties. It’s all a matter of correctly analyzing an asset’s fundamentals and buying at the right time.
Colony plans to do more deals in the movie business—perhaps rolling up other film libraries, such as Lionsgate’s—and in other entertainment sectors. It is looking at private TV channels (such as the New York Yankees channel), at European soccer teams, at sports stadiums, at structured-settlement types of royalty deals. Over the summer, Colony signed a deal with the yoga master Bikram Choudhury to help him transition his thousands of “authorized” studios to a franchise model.
But such deals can only be done one at a time. “The benefit and the detriment of that business, whether it’s Michael Jackson or Annie Leibovitz, is each one is so personalized,” Barrack says. “It’s a crafted investment, a venture-capital investment. It’s investing in talent that has been inefficient; by giving them a different set of clubs in the bag, you’ll make them efficient and take the arbitrage.”
------------------------------
POST EDIT:
They just added this to the article:
''The original version of this article stated that Jackson had not released an album in 13 years. He released Invincible in 2001. It also should have been stated that the agreement he made with the Prince of Bahrain was for a two-album recording contract, a stage show, and an autobiography, not catalogue rights.''
The article is very long, I just took out the parts that were about Michael.. http://nymag.com/news/business/69782/
Last edited: