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Colony Capital plans pivot to digital real estate, Barrack says

Colony Capital Inc. is selling out of businesses and property types where it does not see "meteoric" opportunities, and pivoting to focus on real estate linked to digital and technology companies, Chairman and CEO Tom Barrack Jr. said.

Barrack, the company's founder and an informal adviser to President Donald Trump, announced in July that he will step down as CEO at the end of an 18-to-24-month transition period. He returned to the CEO role in late 2018, after seeking to reassure investors that Colony had his full attention.

In a second-quarter earnings conference call, Barrack said the company and its investors had "endured" an 18-month process of playing defense while trying to determine its next moves forward.

"We are clear on what the offense is now," he said, according to a transcript. "We are going to clean up the balance sheet, we're going to simplify the business, we are going to turn to digital and everything that relates to [it], including the emerging markets and credit, all of those silos are going to be digitally oriented."

Barrack said company leaders are looking to the future, adding, "I think this next quarter, and the arithmetic and math behind digital that we are going to give you by the year-end, is going to be enlightening."

As part of the transition, Colony has engaged advisers to market its industrial portfolio. The company also plans to explore alternatives, including sales and joint ventures, for its hospitality and healthcare assets, Barrack said.

Barrack's intended successor as CEO is Marc Ganzi, who founded Digital Bridge Holdings, a digital infrastructure firm that Colony acquired in July.

Asked whether Ganzi's arrival signaled a shift away from traditional real estate and toward digital real estate, Barrack replied, "Absolutely."

"The way I look at it is, we're dealing with obsolescence on a constant basis," he said. "So just the cycle of traditional real estate, of the planning and entitlement process, the architecture and construction process, the leasing and sale process. By the time you envision a piece of land and get it incubated with the income in place, it's already obsolescent."

Fewer reliable incomes from solid tenants exist, and "the kind of things in every asset class that people wanted are changing at an unbelievable pace," Barrack said. "So to follow the money, the big spenders of capital expenditures in bricks and mortar ... are the technology companies."

The company's goal is to become "the most trusted provider of integrated real estate, digital and capital solutions" to those companies, he added.

In particular, data centers, towers and small-cell and fiber assets will be among the company's focuses, though "it's going to take us a couple of years to get there," Barrack said.