Businessweek Extra - Tom Barrack and Marc Ganzi

Tom Barrick, dislocation, disruption. They are not unfamiliar to you, and yet we throw around the term unprecedented a lot. Right now, what is this period of dislocation and disruption like for you and for the real estate business? Confusion? Um, But confusion is the norm and all of our businesses. When you when you think in our lifetime and you and I kind of started this adventure together in private equity and all alternative assets, the ordinary always reverts to

the mean. And although I'm cycling away ahead of all of you, I've never seen the ordinary. As as soon as information becomes efficient and transparent and transmuted, um, the the edge is gone, and everybody has a pivot and moved to someplace else. It's very difficult for institutional minds

to do that. But the intersection of financial chaos, social up people, political confusion, a global pandemic, the gigantic spread between the halves and the have nots, and a move away from globalization which we all had a firm belief in for the last fifty years, to a kind of secular populism has created a perfect storm. And in that perfect storm, I think leaders do what they do. They lead, but sometimes they actually have no idea to where they're leading.

So that was a lot Mark Ganzi that Tom just laid out financial chaos, social unrest, political confusion, global pandemic. That would seem to indicate that from an investor's perspective, we are in uncharted waters. I don't think we've ever seen this collision of things. As you think about what feels to me like a reset in this business, how

do you attack all of those things? What's the approach? Well, look, the one thing that keeps all of this going is digital, and so our transformation as a company and where we're going is very upproposed for what's happening in the world today. If there's one thing that is consistent, it's the ability to deliver services across a variety of mediums. That is enabling the economy to keep moving forward despite the pandemic.

And so as we think about the things that are important and where we need to go, we're looking ten years ahead, and so as we think about where investable opportunities are, you have to be thinking around the corners and around the corners today isn't so much just about this mobilization to digital and this transformation of five G, but it's really thinking behind that, what are the key building blocks that are going to enable the economy to

keep going to spite civil unrest, despite pandemics, despite market dislocation. What is the one thing that can keep going? And from our perspective, it's really our ability to continue to invest in great businesses, great logos, We have great customer relationships, and the reality is all this has to keep going, Jason, we have to keep moving forward. And so in that respect, we feel like we're very well positioned as we invest

for the next decade. Perhaps I'd offer to as we invest over the next two decades of where this economy is moving so Tom, let's go micro for a second, which is how you deal with this as a for July one, you hand over the reins from Tom to Mark in terms of running the combined business following a

transaction that puts a lot of things together. Help us understand from a micro perspective that decision, the timing and the mechanics of what it means for colony, this brand that has existed, you know now for thirty plus years. It's a monumental decision, especially for a founder, right uh. And and when when I say founder, it wasn't from brilliance or or intellectual creation of a of a great

theory that I became a founder. We all wander into a situation where you start with a deal, and we had a great background is you know the bass is really where we we kind of learned how to be a contrarian investor in this note. But at the end of the day, it's all about culture, values and and when you look at succession, moving and pivoting. When you spend your life building an institution that has permanency, that has transparency, that has consistency, that has governance, is really

difficult even in a private setting. But We're a public company. So when you think of the constituencies we have, we have public shareholders, we have institutional limited partners, we have associates, employees everywhere, we have customers, we have was Mark always says, followed the logos moving into digital. Even even the things that the gigantic institutions around the world, you have to pay attention to. And what they're all concerned about is

one thing integrity. Right, the longline relationship is more important than returns because returns up and flow. So in the process of looking at real estate, as you know we've talked about before, I've always looked at real estate for trading. I've never looked at real estate as permanent ownership because nothing has changed in sixty years. Look at the building where you look at the buildings across the street, many

of them were built in the twenties. The streets were built in the teens, the tunnels were built in the late twenties, and nothing has changed almost a hundred years. So the EBB and flow of real estate values has always been challenged by functional, physical, and financial obsolescence. And what people miss is this battle between cash flow and capex.

So colony has always been in the forefront of kind of contrarian views of switching at impact points, at inflection points in which you're seeing something different than other seas. How do you do that? Um? Steve Jobs had a great speech that he gave it to a bunch of teenagers saying, and I'm not comparing myself to Steve Jobs.

I admire Steve Jobs and look for leadership qualities there and saying most people are navigating streets and alleys at street level, and some very good and talented people find ways to navigate through those streets by looking in front of them. Great leaders look at it from eighty stories above and they can see the destination without having to go through the perian thrust of what ordinary people are doing to find an extraordinary event. But to do that

you have to have extraordinary experiences. And right, we've lived in a in a place where experiences are very ordinary, and we put a premium on those ordinaries. If you go to great school, you go to prep school, you go to great business school, you can now you go to work for a financial institution. That's the norm. As as I was trying to navigate the next iteration of

colonies life because We've had lots of them, right. We transition from a great beginning with the basses really in the eighties, and the contraining environment with the RTC, and then beginning the acquisition of Western hotels a districts period. Nobody thought these were really businesses at the time. Europe ends up in the same distress Asian contagion two thousands, the Internet boom and bust two thousand seven, housing boom

and bust, and we kept reinventing ourselves. So at this stage, the dilemma of saying what's the leadership for the next two decades, to me, was about who can really define where the ball is going now? Where the ball is and who had that culture, who had that brand, and who had two very important things which usually don't come in the same package brilliance, scarce rare very difficult to find and courage. And I had invested with Mark. I've

known Mark actually since he was a danger. His dad was a friend of mine, So I watched his kind of meteor career in this arena as an entrepreneur and digital infrastructure, and there were none, right, there was no

soup to nuts master of this universe. And I invested with him on a personal basis way before we got together in in two thousand sixteen, two thousand seventeen, where I was trying to convince him that moving into this format of professionally managed funds with a with a public entity as the anchor would be a great go forward path, and I really became enamored with that, with his vision, with his ability to see it from eighty stories, with his never ending work ethic in an arena that was

really interesting to me because it was the railroad, it was the electricity of the future. The only thing has changed his Internet and computing in fifty years. Right, this building is basically the same, residences are basically the same, shopping centers are basically the same, and eventually that continual

cap X will erode away returns. And what Mark was doing was was what I thought the future had in store, and his personality, his character, and his integrity fit into what I as a founder had helped the continuation of of that culture for colony would be. So Mark, let's let's get down the level and help people understand exactly what it is you're investing in, what is digital infrastructure, And then let's we're going to talk about sort of how it relates and what it means for the entire

enterprise going forward. But I mean, what are we talking about here when when we get down to brass tacks, you know. For for me to distill it in the most simplistic form, it's really the plumbing that enables information to flow. And so the way that we communicate, the way that we do commerce, the way that we conduct our fitness where kids are going to school today, um, the way that we conduct business to resume call, all of that requires mission critical infrastructure to enable the origination

of a communication and ultimately to terminated communication point. And so along that road, Jason, we touch a lot of different elements in the ability to enable that technology. And so it could be a mobile tower that you see along the Hutchinson Parkway. It could be fiber that runs underneath sixth Avenue. It could be a data center that

sits in for example, Ashburn, Virginia. Or it could be a small cell that literally sits at the corner of Madison where we have a micro tower that's providing amplified coverage. There's so many different forms of digital infrastructure today and it's only growing. It's really becoming an asset class unto itself, and as we try to place it as an investor, and we try to think about where is it is at private equity, is it infrastructure? Is it? Is it

real estate? And the reality is it's a it's a little bit of all three things from an institutional investor perspective, trying to distill it down to one thing. And on one hand, it has operational complexities, right think about the trust that's given to us in terms of managing those networks for Amazon or Microsoft, or Verizon or Vota Phone, Telefonica, Google. I mean, these are the customers that entrust us daily with their information, they trust us with the delivery mechanism

of their communication services. And so what we've tried to do to make it easy for institutional investors understand, we say, look, there's sort of four key swim lanes right now in digital instructure. There's there's towers, there's fiber optic cables, there's data centers, and there's small cell infrastructure. Those are really sort of the four biggest verticals to think about as

an asset class today. Now, of course there's a lot of nuances and in between the lines there, but once again, the easiest way to think about this is these are really the new railroads, and you think about, you know what the Rockefellers did, and you think about these transformative moments in the history of the time of our country. In digital we're having that moment right now. This is really the next major migration path in technology in this country.

You know, whether it's cloud computing or five G there's many thematics happening at the same time. And then you put that against a backdrop of COVID and a pandemic, and all of this is accelerating. So I want to I'm glad you said that because I wanted to press you on that, which is we've heard essentially people say that, especially on the digital side and from a transform transformational perspective. And we'll talk about cities and suburbs in a second,

but the acceleration of that trend. How can you quantify the acceleration in terms of as you've looked out at Okay, this is where we think digital infrastructure is going. We thought it was gonna take ten years, it's actually gonna take a year. Like, what how do you think about that? Well, I think there's there's a couple of things happening at the same time, and once again to try to keep it simple for for investors in from main street, I

think that the biggest thematic is mobility. So once again, as we as we think about our devices and we think about where we conduct business, where we conduct commerce, where we conduct education, and at the same time, we want to be mobile. We want to constantly be on the move, and we want it faster, cheaper, better, and so as we move to five G. Five G is probably in my twenty six years of building networks, it's the most exciting step function and technology that we've ever seen.

Think about an environment where you've got lower latency, which is the distance between the antenna and the actual device. Think about an environment where the device operates ten times faster than you're existing four G phone, and think about more applications, think about more entertainment, think about all the things that you can do from a mobile perspective. It's

a it's a massive change into the consumer. They don't see it yet, right because you haven't touched a five G device yet, which you're which we're now rolling out five G devices, So this is exciting. It's a probably a seven to eight year investment cycle for us, we're talking about one point one trillion of CAPEX that's going to be put into build five g Um we think about cloud computing, we're really in the infancy and cloud computing. You know, less than twenty percent of the information sits

on the cloud today, and we're transforming. We're moving a lot of that information and applications towards the cloud. Because remember and compute, Jason, You've got two things happening at the same time. You have your applications that are running in real time and any of your storage where all your data is stored, and all of that is transforming at the same time too, as we think about a new migration path for where data is stored and where

data is ultimately computed. So these two thematics are so massive and um I think, look, every quarter we're measuring

the performance of our companies. We've got sixteen businesses around the globe that operate in the digital realm, and you know, we had businesses that we're growing at seven Now they're growing at the organic growth that we've experienced in the first, second and third quarter down at the portfolio company level is astounding because our customers are sort of saying to us, look, we need more We need more fiber, we need more towers, you know, we need more data center capacity, we need

more mega wats in terms of power for compute, and we have to deliver. We have to wake up every day and we have to deliver for our customers. And so Tom square that with the traditional quote unquote realist business and what that means in terms of if you're doing this, you're obviously doing less of traditional real estate.

How do you map that out in terms of talking to your investors, talking to potential investors, talking to the world about that transition, Because yes, it's an inflection point, but it also feels pretty radically different to some extent. Yeah, and for sure it is I view as an accelerat. Right. This pandemic is just an accelerat of what was happening

in any event. And I think the difficult thing for great entrepreneurs like Mark Rolling to a great public company CEO public companies like Consistency and themes they can see a decade ahead, and what that produces most of the time is a bureaucracy in ordinary returns, Right, I mean, that's really what it is. So if you looked at Reatland, reat land was all about dividends. Just give me long term contractual obligors on the other and let me collect

net rents. And that doesn't exist anywhere. We were already on that path, right, we were air B and B, Amazon dot Com. My garage looks like a Simon shopping center right by ordering whatever you want online. So the value of real estate has become less and less important in the midst of this accelerated um disintermediation of all those things are important, including information. By the way, because our businesses grew up by saying, well, we have some

little competitive edge. You look at this office billing and say, okay, real real estate is very simple. I have to find a piece of land. That's gonna take me a year. Then I have to get it entitled, and I have to go to mayor, a mayor of any great city and say I need entitlements. That takes another year. Then I need an architecture design it. That's another year. Then I need to build it. That's two years. Then I

needed less it's another two years. It's five years from the time you have an idea to the time that it's created. It now you have ideas being created in an afternoon. Right, innovation and technology is the norm. So in convincing our investors say, look, this intersection, what isn't going to change is the infrastructure of what it takes these great logos to be able to amass the new distribution of everything that we need socially, intellectually, healthcare wise, physically,

entertainment wise. It's just changed. And what it isn't going to be is obsolescent because it's reinventing itself on a constant basis. So to me, net cash flow is all you can need forget about whatever these other factors, a FFO, FFO, earnings, dividends, It all comes from net cash flow, and net cash flow is created by contractual revenues for simple investors like ourselves saying we have to create something that these customers and clients will use, and that infrastructure is a different

kind of real estate. I remember ten years ago there were no digital rates. Five years ago there were a couple. Today, the dominant factors in the industry, the biggest multiples, are digital companies. They didn't think when Mark first started, he had to convince people that radio cell towers were real estate. David Simon didn't have to convince anybody that a shopping center was real estate, or or Steve Roth that the

Great Tornado buildings were real estate. So I think if you want extraordinary returns, if you want to get out of the norm, which the problem today is that, right there's too much liquidity with too few places to go, which is we're seeing this boom in the and the equity market while we're having this devastating financial and pandemic crisis in the world, Unemployment across the globe at higher levels than we've ever seen, an anarchy in just about

every nation imaginable. So to me, you go where the puck is going, and real estate is a very unmoved, stable asset, which is the good news and the bad news. And if you don't pivot, if you don't move, eventually those bricks will fall on your head. And that's been the history of it. So let's let's push on that a little bit, because I would add to the list that you gave the beginning of this conversation around financial chaos,

social unrest, political confusion, an existential crisis. When it comes to real estate, commercial and residential, we don't know where we're going to work. We don't know where we're going to live. So it what we talked about accelerance here. I mean, this is a massive dislocation in the entire way we think about real estate. Do you agree and so what do you do with your existing holdings in the context of that um as as a coward, what

we've done is selling. So investors are are looking for some diversification from the equity market in real estate is always been that right. If you look at the institutional investment, the purpose of it has really been diversification. That it's a that the co variant factor of it is strong. I don't believe that to be true. I don't believe real estate is going to vanish. What's gonna vanishes the

balance sheet, the difference and assets and liabilities. This this real estate, this office building will always be a value bet at a new basis to someone else, because I, as an occupant of this office building, I'm going to do something that has never been done in the last fifty years, which is to say, I'm not going to pay contractual rent and whatever my business is. If I'm

a retail operator in a shopping center. Now every retail operator saying, you owner of the shopping center, going to be my partner, so I'll pay you a percentage of my gross rent. But I don't know what my contractual is. I don't know if I have customers, I don't know if I'm going to get deliveries. I don't know what the regulatory framework of this pandemic is. I have no idea. So if you want me to occupy it, you're going to share that risk with me. Well, that's not what

real estate investors were used to. So I think it changes. It doesn't go away. It just reprices itself. Right, every aspect will reprice itself and reinvent itself, and entrepreneurs will figure out how to do it, and investors will be frustrated because that contractual, net rent and cash flow. If you think of an office building today, somebody owns a prime office building, and which we used to think that marble and granite and burled would and individual offices were

the premium coming back. What we're sure of is none of that is true. Right. The way people are going to be together if they're together, and what we've all learned is zoom is pretty interesting. It's not socially or culturally rewarding to us as it is to our kids who develop their personalities on these devices, right, I mean, they have virtual personalities, they have virtual lives, they create virtual images, selfies, Facebook, Snapchat, it's it's it's a new

medium to communicate, which eliminates a lot of things. I think all of the existing things will stay. They're just not going to stay in the kind of investment theme that investors looked at over history, and so Mark, what does that look like for the overall now is the CEO of the whole shebang? What does it look like for the mix going forward between traditional real estate and digital infrastructure? Well, look, as as a firm colony, two years ago, Jason, we had two percent of our assets

were in digital. You know, fast forward to today, we're almost at fifty rotation of our assets under management to digital. So we've we've had enormous transformation of the company in the last two years. The work's not finished yet. What we've told investors is where we'll be, you know, by Q one of next year the year following, so by the end of next year, we should be about over rotated in a digital as we continue to find the right homes for some of these legacy ass that Tom

talked about. And so monetizations have gone as as we would have expected, I think, probably better than we would have expected. We had a really graceful departure from our industrial real estate portfolio Blackstone. We had a great departure of our European office assets to Acca. We we left a great partnership with Scott Reckler here in New York City earlier this year. And we're finding the right homes

for these assets. And and really given that the acceleration part on the digital side has gone far better than we had expected, it's given us a little bit of a longer runway to make sure that we have the right the right cadence to where we're gonna just you know, ultimately dispose of those assets. And on the digital side, we're growing, and we're growing at an incredible pace. I think this year, Jason, we've done seven significant transactions. We've

deployed twenty billion dollars of capital at Colony. I think that would make us one of the most active investors in the world. UM and so we're finding really good opportunities to put capital to work. We're forming capital at an accelerated pace. I think as the market leader in digital infrastructure, it's given us the mantle to go forward and continue to raise capital on a private basis where we can find really good opportunities to back back our customers.

And meanwhile, at the same time, we we've made just enormous progress on the corporate side, you know, really having a great deal of success deleveraging the business. The last six months, we've we've brought leverage down from twelve to eight times. We've cut gen A by over seventy five million dollars in last year, and we're making all of the right moves to get us into a position to be a leaner and a better read and candidly a

read of the future. If you think about where real estate investment is going in the future, where we are in converge network solutions is where you want to be long term, and so are you getting. Is the appetite out there for those traditional real estate assets, especially in hospitality and commercial, It's incredible. I think, you know, we've been pleasantly surprised at how we've been able to not only exit some of these asset assets, but really exited

at positive netbook value. Which is the key, so that we're returning capital back to the balance sheet where we can redeploy that capital into what we believe are the best opportunities in digital. So, you know, exiting the community shopping center space, which we did earlier this year in a transaction. We had a series of community shopping centers anchored by Albertson's. Somebody else felt like that was a

great opportunity, and guess what it probably is. Think about in the pandemic, what has worked retail shopping centers that are anchored by big grocery stores. So that worked out really well for that particular investor. I think the lodging sector is interesting. I think I've one of the things I was telling tomu other day that I noticed is we're seeing private equity come into lodging, which is something I haven't seen in twenty years. And I'm not talking

about Barry and Starwood. I'm talking about real private equity firms backing management teams and management companies looking to acquire hotel assets, not only management platforms, but actual assets. So we've got to actually a pretty good limited service portfolio. And so we've done great work of the last six

months restructuring all of our debt. We're now in a great place where we can think about what is the right path for those set of assets, and so we'll spend the rest of this year thinking about the logical home for our lodging assets, and I think we're gonna actually see probably a pretty good result. Um. Looking at the total amount of capital that's sitting on the sidelines, it's incredible to me that you know, you think about

fundraising right now. We've had a great amount of success fundraising because people are excited to be reallocating assets and the real asset category from traditional real estate and traditional infrastructure into digital. But by the way, there's opportunistic real estate capital being raised all around the globe right now to take advantage of what Tom just talked about. So UM, I think we'll see we'll see good up good opportunity. An interesting factoid if you think that real estate is

the hospitality business is going to be there. Hotels are going to be there, the pier is going to be there, the plaza is going to be their limited service is going to be there. All that changes is the nature of the contracts and the services. So you have sea Corps, you have highatt Alton Marriott that had a contractual relationship with an owner saying I want to percentage of the growth. I want to presentage of the net. I want a

brand fee. I want a franchise fee. Here's what you have to deliver to your customer in order to keep my franchise. I want to turn down services. I want three fitness centers, I want six restaurants. I want food service twenty four hours a day. And the owners are saying, whoa, there's no way. So now the sea corps are changing their relationship with the owners, So the liability side is

coming down, down, down. So I think what you're going to see in all this is Marcus saying we're seeing values because now you have a new kind of manager owner coming and saying I can take advantage of this disruption of the sixceler This is where it was going. Young people don't want all of this stuff. They have grub Hub. You don't need twenty four hour food service, you don't need a health facility, you don't need two times turndown service. So I think the metamorphosis on the

good side will happen. So the value of whatever you think an urban location or suburban location. How that ebbs and flows, it'll still neither. Tom. I'm sitting here listening to you though, and thinking maybe at a different time this, this would be your you'd be feasting on this to some extent. I mean, these are the periods of real estate dislocation that you have found great success in over the years, and yet you're on the cell side, not

not the buy side of this. And I find that interesting. Yeah, I'll tell you why. Is as we developed kind of the distress ideas and theories and people, people never see it when it's happening, right, So a contrarian theme in real estate always seems foolish at the beginning. So while while we had the great tenure at Bass with the bottom and occulture in Kelvin Davis in the whole history of of what Bob had created, when we bought American Savings,

people thought we were out of our minds. Why would you buy thirty billion dollars of troubled assets and a regulated entity. Then the RTC started in ninety was the same thing. People said, you're out of your mind. You're buying this junk for thirty cents on the dollar. Four years later they said that was nothing. You guys are anybody could have made money by buying thirty cents on the dollar. What was the key was nobody had the information. We had an edge. Real estate people had an edge.

Financial investors had an edge because the proliferation and the transparency of information and all of those things was limited to certain silos. Today everybody has all the information. We have no edge. What edge do you have? There's zero edge. So to me, the thematic shift is more important than the distress of an economic component in a moment and value because now we have a public company, we have five fifty institutional limited partners who are all looking for

outsized returns. Why we're trying to produce replicatable dividends to the shareholders, and that happens over a decade. So it's hard for me to see these physically obsolescentum structures which are always going to be here. Just the liabilities will

be repriced. It's a longer, harder road than taking the thousands of threads that Mark has weaved over a lifetime, the hundreds of threads of the colonies weaved and trust what we talked about in culture and brand and managing institutional money and putting it together in this tapestry of digital, which to me has the best component of net cash flow from contractually credit worthy obligers. Look at the look at the stock mark. It's all driven by five logos.

Those are the five logos that you want on the other side of our transaction. I don't know anymore how to do a We work with individuals who are entrepreneurs, who are innovating technology, which is we we need more, but there's no contractual credit on the other side of this. So I just think it's a unique opportunity for that disintermediation by going to a new theme and going to the railroad and the utility of the future, which is all things digital. So mark in terms of and then

we'll move on from the disposal side. But in terms of the disposal side, given the economic just confluence of events out there, are you getting what you need from the private market? Is there still a need for the government to step in on the CMDS side? I mean, I know that that's something that both of you have discussed it to some extent. What's the right remedy for where we are right now? Well, Look, the reality is

we don't wait for government to solve our problems. What we decided many many months ago is we're going to decide we're gonna we're gonna pave our own path and we'll have to make our own decisions without any help from external forces. And that's just the bunker plan we made seven months ago, and it's worth doubt reasonably well for us. I would say, I think on the on the dead side, on the lodging side, there was no

there was no lifeboat for the lodging industry. Um greater than fifty of the hotels in this country are basically insolvent today, and we knew that. We identified that early, and so we worked with Mulus, we worked at our lodging team, and ultimately we we had to work very hard across seven different credit facilities to exact the correct result, which now puts us in a place where we can

ultimately monetize and harvest those assets. I think, thinking through our mortgage Read, I'm very pleased with what as He has done there. We've we we only had to touch two different loans on our RepA lines, which is fantastic on when you think about the pool of assets that mortgage Read represents today. Now they've got a big cash position. They're starting to play offense and think about ways where they can deploy capital. So once again, decisions made six

seven months ago are now reaping the rewards today. And then the last thing is just the corporate balancy, one of the highest priorities that I told Tom when I came here, and as his partner, I said, look, we've got to deliver our balancy. So we paid down some debt last December. We made a series of constructive moves in the second quarter to rebalance our balance sheet, getting net leverage down about eight times, and we're going to

continue to do that. We want to be really as a digital read as a diversified digital re Jason, we want to be in that sort of five and a half to six times leverage level alongside of our peer

groups like Digital Realty in American Tower. So we're making tremendous progress on the balance Look, the world gives you no credit for it, right, you deliver and people sort of on and say, well, good for you, But um, we know that that's the hard work that had to be done, and I think a lot of that hard work is now behind us, which has enabled us to play offense on the digital side, and that offense has

never been been better today. In terms of the twenty six years that I've been doing this, I've I've never seen an environment like this where all of our customers are growing at the same time. It's pretty pretty remarkable. Actually, Okay, can I give you a little different point of view? So Secretary Manuchin, Chairman Poue have done an amazing job with four five into Jewels trying to figure out how do we get a plan to the people. It's not to us, right, it's not to the big companies, it's

not the balance sheets. People are panicked for survival. That that average individual trying to figure out how do I live, how do I go forward? What's what's happening with my rent, what's happening with my homeland, what's happening with my check. It's not coming from that employer anymore. And that that confusion and dismay when you have three to five trillion dollars being flushed into the economy and how you disperse it.

You have to give them all great credit. But at the end of the day, the solution to all of that has got to be a resurgence of confidence across all the things that we talked about pandemic. I honestly never thought I would see a global submission as bad as this is and as horrible as one death is, and and how in an environment like this we can't

find a solution or cure is another quandary. But the cessation of revenue in the world is a problem, and the unintended consequences of that, the the the openness of the division between the have and the have nots. What we're seeing in black lives matter, what we're seeing in Kenosha and Portland, in Chicago, and and the anarchy certainly is part political which we've which we've always had, is being displayed in in a different way than it's it's been.

But as part of this financial frustration of people just not having a GPS as what is their life going to be and can they sustain themselves? And until we fix that, I think nothing is going to work. So what you're referring to is is something that you mentioned at the top of the conversation, which is this moved away from globalization towards secular populism. Just using the words that you used earlier. UM, many people put that squarely at the foot of this administration, at the feet of

this administration and the Trump administration. It was almost exactly four years ago that you were on stage at the r n C telling the world about your friend Donald Trump. Many people would blame him for exactly these ills that you're describing in this widening disparity. What do you say to that? I say that, and thank God we're in America where we can all criticize the powers that be and hold them accountable for whatever variances that we feel

that that are at state now. Starting with our position, in my position as a public chairman, is I support whatever regulatory body is in power at the time, and whatever those set of rules regulations are, will live within and will will abide by um. Donald Trump has been a friend of mine for forty years as I started this adventure. I have great admiration respect for him as

an individual and for President United States. This is not an easy job, as it is not for the four thirty five individuals who are paid a hundred and seventy four thousand dollars a year to take all the abuse that they all take and try and figure out how how do we solve these these global ills at the same time, I don't agree all the time with how he messages or or what happens, as I don't agree

with a lot of world leaders. And the political political situation I think is frustrating because people are in agony and that decision will be in the polls. That Joe Biden has been a friend, I have great respect and admiration for him also, and I think that the process is the right process. President Trump came in to disintermediate a system that at the time his core believed was the proper thing to do. Well. Now have a report card and a process in which a democracy which is

which is threatened. I mean, what's happening is we're testing our democracy. It's not working well. Right. The rich seemed to be getting richer and the poor seemed to be getting poorer, and people are frightened for their education and primarily for healthcare, just the basic needs that's got to be fixed. Whether that all lies on the hands of

a president or Congress or ourselves as individuals. The complexity of it is beyond the scope of anything that I can I can look at, but this globalization versus protectionism is not just America, It's every country post war around the world today, this idea of America subsidizing all of the national or international institutions, the United Nations, the w t O, all of these organizations around the world that

we fuel thinking that we're going to alive. Those individual nations are also suffering from the same dilemma between haves and have nots, corruption, political dismay. It's a it's a torturous time in the in the world, and everybody's connected. So what's different today is Mark's twenty seven years in this business and building a digital infrastructure is communicated instantly. So a better one sitting in the middle of Saudi Arabia has a device that better one knows what's happening

in the middle of Beverly Hills. He knows what's happening in London, Paris, Hong Kong, Japan in an instant. So the cloister of information by all of these political regimes around the world has crumbled, and it's crumbled into monopolies

and duopolies. And the monopolies and duopolies are digital. And President Trump, whatever people think of him, and and I really look at it simply is these these people, these senators, these congressmen, the presidents are all well meaning, They're all well meaning, and there is no perfect answer to everybody. It's it's it's it's a torture situation with almost three hundred million people trying to figure out where you go.

But respect, trust confidence can only come when people are confident that they can feed their family, that they can educate their family, that they have a future, that the American dream is someplace in front of them. And I think people are confused, what what is the American dream today? What is the global direct And that's not a presidential issue.

Well to the point of the American dream, you know, one of the big questions that I would pose to both of you because the work that you're doing, both digitally and in more traditional real estate sort of cuts the core of this, especially as I look across the history of of colony, which is we are facing big and I am overusing this word existential because it feels

that way. Questions about the future of cities, the future of suburbs, that in itself the suburbs have become a political issue, and in the last few weeks and really ratcheted up the rhetoric from President Trump specifically, what is as you look around and you think about the digital enablement, and you think about that, and I'll start with you, Mark, what is the future of the city versus the suburb at this moment? Well, I think we're in transition, um.

And as the engineers and the builders of this infrastructure, we see where the traffic's going, because once again we're entrusted with that information. And what I would tell you today is is from a network perspective, from a digital perspective, workloads are shifting from the urban core out of the suburbs in a in a pace that we've never seen in three decades. And what I mean by that is the proliferation of network infrastructure is more prominent in the

suburbs than it is in the urban cored today. So data centers are now being built, Jason on the edge. You know what's the edge? Um? The edge for us is, for example, bluff Dale, Utah. We just built a massive data center there at Colony and nobody would know what bluff Dale, Utah is, but it's the suburbs of Salt Lake City. But there are are our biggest customers sitting there saying we need to be there, we need to put our workloads there because in the core of that city,

that's not where the activity is. That the activity is happening outside the city. And so as we think about where we've got to you know, once again, get rights of ways, get permits, um we actually we we we buy fee, we go through the complicated process of entitlements. It used to be those were really complicated issues in state Maine, which was really downtown New York City, downtown

Los Angeles. That's totally changed. We're now fighting to deploy infrastructure or build that next generation of real estate on the edge, which is happening in smaller cities where people have moved. You know, my belief is some of this is somewhat overblown. I think people will come back to the urban core. Urban cores where really from a from a social a perspective and from a cultural perspective, that is where people like to be, where they want to

entertain themselves. So I don't view this as being binary in terms of you know, nobody coming back to New York City or nobody going back to Los Angeles or Miami. People will come back when they feel confident and they feel confident that there's a good vaccine and that they ultimately feel like that there's a good cure. But in the meantime, the activity in the suburbs, which was largely neglected from a digital perspective, is where we're spending all

of our time. We think about boots on the street of where we're building and where customers are saying, this is where we have a problem. That's where we're putting our energy, that's where we're putting our capital. And by the way, it's not just in the United States. I think about some of the things that we're doing in Europe. I think about the things that we're doing in Latin America as a firm, and and it's no longer just

building those big cities. It's starting to take network architecture and push it further out to the edge, which is candidly where people feel safe, where they feel comfortable, and also where they're where they're conducting their lives. And our lives are happening digitally at home, as Tom's it earlier,

So it's it's pretty interesting. It is a pretty big shift, you know, from an actual construction, entitlement and ultimate leasing perspective, there's a lot more activity happening outside of the urban core than than happening you know here in big cities. And so Tom, what do you make of that? Is someone who's been looking at at real estate and it's the buying and selling of it, the consumption of it,

the creation of it. I mean, is this a Is this a catalytic or moment or an inflection point that we will look back on and say our cities were changed, our lives were changed. I don't think so. I'm long New York City. By the way, if you were asking me if I go back with my distress hat on, the first place I would be is here. The last place I would be is in in the other end

of the transportation right. So what's happened is great great places to live around New York City have grown from where does the train and and the subway a goo? And that was the key consideration is I could buy a place in Granted at a thousand dollars of foot versus a co opera condo in Manhattan at four thousand foot and I can commute back and forth in the subway or train. I think young people are going to

get very tired of the suburbs very quickly. The financial engines will exist in places like New York, London, Paris, Los Angeles. But again it's just an accelleran. People here were already thinking of moving to Florida, with a confiscatory tax regime and a political situation which they weren't happy with, whether the mayor is doing a good job or a bad job. It was perceived that it's um, it's not working. You have an infrastructure here. People were worried about building

a brand new condo or co op. The streets are falling apart, the subway doesn't work, the bridges and tunnels are a hundred years old. It's just accelerating everybody's thought and saying, you know what, this this, this has frightened me. Life is short. I want to enjoy my kids because of the digital frontier, I have other opportunities to do, and I want to be where I don't feel the pressure of this, of this epidemic. Every time I touch

an elevator. My belief is that will vantish, that will go away the aftermath after this election cycle, whatever that is will will start to dissipate with with a vaccine, with the cure. And I always ask my friends, I said, great, a vaccine you're gonna take one half of them to say never. Right, So I think cities are here to stay. Suburbs are here to stay. The utilization of them is going to be different, and and in a in a replicat Herble way, it's impossible to replicate New York City.

At the same time, you as an individual looking at how you want your children to live, how we want to live our lives, how you entertain transportation and entertainment. One of the problems as corporations are getting spoiled, right, TNA budgets are zero. Now does that go back to a Bloomberg saying great, I want to send three hundred and sixty of my people to St. Barts for a

convention so that they can bond. Right, I'm not so sure, So I think again, it's just accelerated everybody's thought pattern. How do you want to live, the frailty of life, the the enormity and importance of a home. Now we've all been working out of our bedrooms and living rooms, and see why I need a little more room. And my kids now can't recreate the way they used to have athletics, So I want more room and eventually that gives way to saying, you know, my kids only communicate

in in three syllables or with emojis. There's got to be some form of social interaction and connection. How do I how do I recreate that in a cultural and ironment where they can have languages and diversity and and different experiences than everybody else is having on Snapchat. So I think it all, It all will come back. It just takes time, all right. So want to wrap up sort of where we started, which is this handover and

the founder to the next generation? Tom, You and I have seen it across some of the best known investment firms in the world, many of which you've grown up with. Um, what does this feel like to you to to to hand off and and what is the next thing look like? This actually feels euphoric to me because I've known Mark and Melissa and his family for decades. So we had we had an issue at the beginning, and the issue was my board said okay, great because when I came back.

I came back two years ago to be CEO, and I had a mission of two things. Turn this company around, get rid of this diversified read base with an investment management toggle which the market didn't like, they didn't understand what it was, so to turn that ship and find

my own successor. So, of course, the the the initial response is great, find a new successful le's hire three search firms, will go out and find the best proven public market, alternative asset private equity CEO, and we'll put them in place, and thank goodness to a fantastic board

that we have. I told them to me that was exactly the wrong way to proceed, because you and I have witnessed my peers much smarter, much more prolific, much wealthier than I trying to make that succession to third parties they had no relationship with that didn't have those two essential ingredients brilliance of courage and experience together, so

there's no surprises as you move forward. So my concern was to a series of constituency, starting with the thousand and the people that work for us all over the world, with their lives, with their families, with their inspiration, with their future, with the shareholders of the public company, with the banks of the public company, and with the hundreds of limited partner financial institutions we have who believe in us to invest with us. And that's based on character, integrity, consistency.

So I didn't start this process with Mark casually. We we I've invested with him first as an individual investor, we became friends. I saw how he was conducting all of the elements of his global empire as well as his personal empire, and so I was really certain when I brought this to the board as an idea, and they took their time and they vetted the process. So by the time that we got here, we accelerated the process.

Originally we were talking about Mark not becoming CEO until January and I went to the board and I said, look, he is ready. This is the time. We're at the right moment. I'm really good. I can concentrate on the things that I do best, which are getting less and less because the organization is getting better and better. And in order to make it work, and the reason it hasn't worked in some of our peers as founders, as much as they talk about succession, they can't spell it

right while they're still alive. They occupy all the air in the room, and the new CEO doesn't have a chance. So what I've done with Mark is say the rains are years. You've got those pieces I'm not going to interfere. The board has given you the authority and the mandate to go forward. I'll do those few things that I can do that add value. And he's done an amazing job. So I'm I couldn't be more happy and more hopeful. Um,

it's the world that we need to worry about. Colony will will will be great and will dominate in this accelerated period. So what are you going to do about the world. Then we could use your help, use somebody. So look, I think I think we need to build a tapestry of trust, which is really really difficult, right, I don't, I don't. I don't know the solution. So I think we do it one brick at a time. And and I go back again to say, and I think the President has done as good a job is

anybody good do. Nobody works harder than he works, and and whatever the political framework that all of these individuals have is complicated. And and the four and thirty five congressmen and senators that we have also do a great jo. It's not Democrats and Republicans. Everybody's just looking for different venues. But the world is at a loss for this pattern, right, great we have. We have to press on China and

push back. Everybody understands that economic component. But to think that we can exist without having a hand in glove relationship with China, or with Europe, or with Mexico, or with Canada or with Russia as a feudal idea. So I think I have to challenge a little bit on that because it feels like part of what this administration has done has taken a go it alone type approach. Well,

I don't know. I'm I'm not well versed enough on the political situation to give you an intelligent answer on that, but what I can what I can say is since the war, when you when you looked at the transition of of what we did in order to reunite the world, we did subsidize all of the major institutions in the world to subsidize those countries, and we brought them back.

It was to our benefit, and we exported our intellectual property to have stuff manufactured less expensively than we could in the U S which crushed our labor unions right, which which crushed crushed our manufacturing sectors. And we bought them back, which was hand in glove because we also had to sell our debt because we were at a bigger and bigger deficits. So the manufacturers of those things, we're buying our debt and we get into this very

complicated situation. So I am personally and I'm not talking from a public point of view of colony. Colony is neutral on all political effects. Is pushing back on those institutions makes sense and saying look, you have to take economic accountability now, Europe, Japan, China, everybody has their their own play. But to think that at this stage in that all of us don't want the same thing. I don't want my son's to be killed in Afghanistan. I don't want to afghanistan kids to be killed by our

kids anywhere. It's our chaic to to think that this adversarial relationship exists. But it's happening at home right. The outer frustration of people is causing an anarchy. That is the most frightening thing to us. These economic things, financial things, brilliant people like you and market You're going to figure them out. But at the basis of this compassion, trust, confidence,

empathy for each other. And it's not a political decision, it's a decision on all of our parts, and this, this pandemic, I think will end up being a good thing because it's made all of a step back for a moment and say what's important. I don't know what the answer is. These political mechanisms are so complicated. I have great trust and confidence in all of them, the Democrats, the Republicans, the system, the process. But there is no

easy answer. We're a very diverse country and nation, and that's the great thing is through the process, hopefully something other than aren't anarchy, right. I mean, Martin Luther King did a fantastic job by using the system to change it, and I think that's what needs to happen. If people feel that way, we have a method of doing that. But I'm I'm hopeful for America. I I still as I wander around the world, which is the only thing I think my competitive advantage is that I show up.

I'll still show I look at my brilliant peers and I say, how many you're gonna be smarter than Steve Schwarzman or David Bonderman, or or Leon Black or David Rubin. Seemed very difficult to do. Um, what you can do is show up and to listen and to create that tapestry, and I think everybody all over the world is at the point where they're saying, we need, we need to bond somehow, and it's not a political decision, it's an

individual decision. And that was Tom Berrick, the executive airmen of Colony Capital, and the new CEO, Mark Ganzi joining me in New York City, my first in person interview since March. Really grateful to them for sharing their thoughts. You've been listening to Bloomberg business Week Extra, be sure to tune into Bloomberg Business Week Radio Live Monday through Friday at two pm Wall Street Time on Bloomberg Radio. I'm Jason Kelly. This is Bloomberg