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Tom Barrack's Colony Capital Seeks $5B Sale Of Industrial Business

Colony Capital founder Tom Barrack

Still reeling from the aftershocks of a money-losing merger, Tom Barrack is betting on the consolidation wave in industrial real estate to get things back on track.

Colony Capital is seeking a buyer for its industrial subsidiary, Colony Industrial, targeting a sale price of $5B with the assistance of Morgan Stanley and Eastdil SecuredBloomberg reports. The move would follow a strategic review conducted by Colony earlier this year on which assets in its portfolio were both valuable for sale and secondary to its core strategy.

Colony Industrial owns mostly last-mile warehouses, a crucial component of the modern supply chain for e-commerce and brick-and-mortar retailers, Bloomberg reports. It added substantially to those holdings in March with the purchase of an 11.9M SF portfolio of West Coast properties for $1.2B.

Part of Colony's internal review included preliminary discussions with Oaktree Capital Group about a partial acquisition, wherein the idea to sell Colony Industrial first arose, Bloomberg reports. No deal was closed, and Brookfield Asset Management has now reportedly emerged as a possible buyer.

In 2017, Colony Capital acquired NorthStar Realty and NorthStar Asset Management in a deal worth billions that proved disastrous as the new company, Colony NorthStar, lost more than 60% of its value in little more than a year. 

Solar panels on Prologis International Park of Commerce that houses an Amazon distribution center in Tracy, Calif.

In an earnings call with investors late last year, Barrack chalked up the losses to a longer-than-expected integration process and Colony's overestimation of the assets NorthStar brought to the deal. Barrack stepped back into the role of CEO of the company he founded, which also reverted to the name Colony Capital, as part of a leadership shake-up to reverse fortunes. 

To do that, Colony needs serious capital, and industrial is the asset class with the most. On July 15, one of the biggest warehouse owners in the world got bigger as Prologis bought Industrial Property Trust for $4B in cash. Six weeks before that, Blackstone Group paid nearly $20B to acquire GLP, which was only part of a portfolio Blackstone had sold for $8.1B in 2014.

In mid-2018, Prologis laid down $8B to purchase DCT Industrial, making it around $32B worth of mergers across just three deals in a little over a year. Consolidation may be the order of the day as the relentless competition and thinning margins of the distribution center industry requires deep pockets to keep up and stand out.