Colony Capital, the real estate investment group founded by Tom Barrack, said its portfolio companies had defaulted on $3.2bn of debt secured by hotels and healthcare-related properties.
News of the defaults came in a regulatory filing in which it said it had also suspended its dividend and tapped $600m from a revolving credit facility “as a precaution to ensure funds are available”.
A longtime ally of US President Donald Trump, Mr Barrack has been an outspoken advocate of government support for the real estate industry, which he portrayed as being “in chaos” since governments began shutting down the economy to try to limit the spread of the coronavirus in March.
In a series of television interviews and blog posts, Mr Barrack has argued for drastic measures ranging from massive government subsidies to the suspension of mark-to-market accounting and a moratorium on margin calls.
But in an interview last month, he presented Colony as a survivor, arguing that extraordinary relief was mainly needed to protect “the little people, not the big people — because the big people just restructure”.
Colony said on Friday that it was in “active negotiations with all lenders” to extend debt falling due this year, while warning that there “can be no assurances that the company will be successful in such negotiations”.
The defaults occurred within a portfolio of 157 “hospitality properties” and 357 nursing homes, assisted living centres and other healthcare-related properties, which accounted for nearly three-quarters of the real estate on Colony’s balance sheet before the crisis struck.
Colony has been reinventing itself as an owner of mobile phone masts, data centres and other “digital” real estate, which now account for 41 per cent of its assets under management, according to the new filing.
Colony has received a “notice of acceleration” covering $780m of the defaulted debt, it said, without giving further details. Lenders often issue such notices as a way of calling in an entire loan after a borrower misses a payment.
The company did not say how many properties could be at risk because of the defaults, which relate to “non-recourse” debt, meaning that while lenders may be able to seize the mortgaged assets, they cannot pursue Colony for any liabilities that remain.
At the corporate level, Colony has $1bn of cash on hand, including the $600m recently drawn from a credit facility. It expects to be able to meet obligations, said Mark Hedstrom, its chief financial officer.
The negotiations between Colony and its lenders recall a tug of war that broke out during the 2008 crisis, when falling real estate values and declining rents crippled investors, among them one of Mr Barrack’s close friends.
Mr Trump, who in 2008 was partway through building a 92-storey tower in Chicago, sued his lender Deutsche Bank, arguing that the financial crisis was a force majeure event that should prompt a loan extension.
Mr Barrack, too, has argued that the coronavirus pandemic and associated economic shutdown is a unique crisis that calls for an extraordinary and widespread suspension of contractual obligations.
At the same time, he has presented a measured assessment of the impact on his own company.
“The survival of the common stock of Colony is a certainty,” he said on Friday.