January 30th, 2011
Reprinted from Cai Fu Tang December 1, 2010
I teach investment classes at Peking University in Beijing and Cambridge University in the UK, and I like to start the classes with a quick quiz on famous investors. Without fail, executives and MBA students from China always know the strategies of Warren Buffett and George Soros – and a few can even identify Buffett’s teacher Ben Graham by his photo alone (something few Americans can do). But I find there is always one investor that seems to be completely unknown in China, global real estate guru Tom Barrack.
Los Angeles-based Tom Barrack is arguably the world’s greatest real estate investor. And given Chinese investors’ obsession with real estate, it’s a little surprising he is not widely studied here (although I suspect he is studied in Wenzhou). In Asia, he is best known as the man who bought spent nine years convincing the Singapore government to sell him the Raffles hotel chain for $1b. In Japan he is known as the man who bought the Fukuoka Dome, Japan’s major stadium. And globally he is known as the man who bought Michael Jackson’s house.
Since its’ founding in 1991, his private investment firm, Colony Capital, has invested over $45 billion in over 12,000 assets worldwide. Besides being big, Colony is generally regarded as one of the smartest private equity firms focused solely on real estate. It’s the kind of firm that other good investors listen to.
Barrack’s philosophy is similar to Warren Buffett’s. He is mostly hunting for value that others don’t see. His purchase of the Japanese stadium was based on a calculation that the titanium in the roof was worth more than the selling price. His strategy is about getting a cheap entry price (relative to value) on a handful of investments, not moving lots of money and taking a yield.
He avoids the crowds and goes where most others aren’t looking. He hunts around the world for deals nobody else is seeing. He purchased 55% of Mars Entertainment, the leading movie theater chain in Turkey. He purchased 10% of Megaworld Corporation, a development company based in Manila. He has even purchased private hospitals in Switzerland and pub companies in the UK. His 2005 announcement that he was exiting the US real estate market due to too much capital chasing real estate appears, in retrospect, exceptionally smart.
If “buy it cheap” is strategy #1, “buy it cheap and fix it up” is #2. Everyone who has ever bought a house, fixed it up and sold it knows this strategy. And if you operate across industry classes (hotels, resorts, casinos, apartments, etc.), there is a lot of room for such creativity. He buys old famous hotels, including the Savoy in London, and refurbishes them. He has developed luxury resorts in emerging markets. He has bought hotels or residential complexes and turned part of them into service apartments. He has bought casinos and fixed their management.
I started following his deals about 8 years ago due to his work with my boss at the time, Prince Waleed. They had partnered on quite a few famous investments, most recently the merger of Fairmont and Raffles to create a $5.5 billion luxury hotel chain. This was another example Barrack’s “buy it and fix it up”, but through mergers.
Although what really caught my attention about Tom Barrack was his crazy global lifestyle. He travels almost continually, often in a different a city or country every three days. He lives between Asia, Europe and the US. He is comfortable doing investments everywhere in the world. This sort of global strategy and lifestyle struck as the right approach and level of ambition for a global age. I have built my own lifestyle in similar global fashion; living in New York and Shanghai, investing globally and teaching in Beijing and Cambridge.
However, Tom Barrack’s most important lesson for rising Chinese investors might be ambition. He has left a clear roadmap for how one ambitious person in one lifetime can build their own global empire.
October 10th, 2010
Dubai, which has long drafted Singapore, should note Singapore’s recent launch of the Marina Bay Sands casino. It’s an important lesson in how a city-state can build family-friendly casinos and jump start tourism.
Singapore’s recent opening of the Marina Bay Sands appears to be a glowing success. The $5.5 billion resort has logged approximately 5 million visits since its opening in April 2010. And even this is while it is still in a state of partial, phased opening. According to a recent Wall Street Journal article, they are expecting over 70,000 visitors per day when it is fully completed by the end of the year.
But Singapore’s entrance into the casino business was after a long and agonizing decision by the government. There were concerns that gaming would invite crime. That it would be incompatible with the family-friendly environment of the city and the local sensibilities. That it would change the reputation of the city. They did not want clean, law-and-order, family friendly Singapore to become a casino town like Las Vegas or Macau. These are likely the same concerns that Singapore’s city-state cousin Dubai would have, given their cultural sensitivities.
But Singapore’s casino initiative has now proven four things that Dubai should seriously note:
Lesson #1: Casinos are not incompatible with law-and-order, clean, family-friendly cities. With the right government oversight, they can be introduced in a controlled and limited fashion. You can contain all the gambling within the casinos themselves. You can contain the casinos within specific real estate developments. And you can control entrance to the casinos through fees and other mechanisms.
And Dubai is already comfortable creating such controlled environments. They already limit alcohol, clubs and bars to within specific hotel resorts only. Note the Sands serves coffee and tea, not alcohol, in the casinos. In short, you can get all the benefits without the risks to the city’s reputation or sensibilities.
Lesson #2: The benefits are massive. The most powerful benefit is that gaming drives tourism, which happens to be Dubai’s lifeline. Casinos are a powerful mechanism to draw in tourism and it is a particularly stable type of tourism.
Attracting such inbound tourism has always been the strategic objective of Dubai and its industries; feeding the real estate, hotel and retail businesses of the city. But it has always been unstable, depending on warm weather or real estate purchases or retail shopping trips. Casinos create stable inbound tourism. Gaming has supported Las Vegas’ isolated existence in the desert for decades.
And you also get a multiplier effect as people already visiting stay longer on trips. It moves the destination beyond “stop-over” or “weekend-visit” status. So not only do you increase inbound tourism from Russia, Europe, and Middle East; but you also add extra days to all the existing tourism. Dubailand, the still developing theme park, was envisioned with just this objective of increasing the average length of stay.
Lesson #3: In Dubai such a tourism impact could be even larger than in Singapore. The US has Las Vegas. And China and Asia already have Macau. But Europe and the Middle East have no such gaming destination within easy flying distance. Certainly not one capable of combining gaming with mega-real estate and a scenic location. Dubai could be the family-friendly casino town for Europe.
Lesson #4: Casinos directly drive real estate, Dubai’s other growth engine. Dubai has already excelled at real estate but suffers from fluctuating foreign demand. Casinos could re-build and re-invigorate the real estate market likely faster than any other move Dubai could make at this point. Singapore is already reporting an increase in the residential, retail and office demand all around the bay where the Sands is located.
The long and the short is that Singapore has just shown Dubai, its long-time emulator, a potential silver bullet for its current situation. Since its collapse, Dubai has become a well-driven car with a great structure but without much of an engine. A family-friendly casino initiative could provide a powerful engine and could re-launch Dubai. It would be a similarly agonizing decision for Dubai but the lessons from Singapore are worth considering.