Dianne Feinstein Mixes Money With Oakland Foreclosure Investor


Richard C. Blum and Dianne Feinstein enjoying a chuckle.

Last month I published an investigation examining the big corporate investors that have bought up the East Bay’s foreclosed homes, turning thousands of them into rental properties. Featured in the story was Cheri King, an Oakland resident who lost her house due to predatory bank lending and the foreclosure crisis. Now her home in East Oakland is owned by Colony Capital, a private equity firm from Santa Monica run by billionaire Thomas Barrack, Jr.

Last Friday it was announced that a hotel chain owned by Barrack, FRHI Hotels & Resorts, purchased Oakland’s Claremont Hotel. Joining Barrack in buying the Claremont is Richard Blum, husband of U.S. Senator Dianne Feinstein.

Here’s what the company’s press release said:

“FRHI Hotels & Resorts (FRHI), the parent company of luxury and upper upscale hotel brands Raffles Hotels & Resorts, Fairmont Hotels & Resorts and Swissôtel Hotels & Resorts, together with California financier Richard C. Blum and his family, have purchased the historic Claremont Hotel Club & Spa in Berkeley, California, it was announced today. FRHI and the Blum family are equal partners and terms were not disclosed.”

Whatever the specific terms were, the general gist is that Blum and Feinstein are now business partners with Barrack.

What does this mean for victims of the foreclosure crisis like Cheri King, and homeowners currently fighting to stop foreclosure? In her effort to stave off foreclosure by Wells Fargo, and win back her home from Colony Capital, King wrote to Senator Feinstein’s office last year. According to King, Feinstein’s staff were responsive and helpful, but ultimately nothing has come of her attempt to bring the California Senator’s attention to the problem of continuing bank foreclosures, dual tracking, and the investors like Colony Capital taking advantage of this situation.

Now that Feinstein is a business partner with one of the largest foreclosure investors in the nation, Colony Capital, will there be a push for more meaningful oversight of the banks that are creating the inventory of empty homes for buyers like Barrack to buy up?

  1. From Investors Club: http://bit.ly/OVfbt5

    Study No. 3: Colony Capital
    Since 2007, UC has invested millions of dollars with Colony Capital, a Los Angeles private investment firm. One of Colony Capital’s principal partners is Richard Nanula, a longtime trustee of the University of California, Santa Barbara. One of Colony’s business partners is Mr. Blum. The intersection of financial interests between UC, Colony Capital, and Mr. Blum is revealed through the workings of the leveraged buyout deals of Fairmont Raffles Holdings International in Toronto and Station Casinos in Las Vegas.

    Summaries of both deals are presented below.

    Fairmont Raffles Holdings International
    Toronto, Canada
    The Players:
    • Colony Capital is a $45 billion private equity firm specializing in the privatization of hotels and casinos. It owns one of the world’s largest casino-hotel conglomerates, Resorts International.
    • Prince Alwaleed bin Talal bin Abdulaziz Alsaud is a member of the royal family of Saudi Arabia and one of the world’s wealthiest individuals.
    • Kingdom Holding Company (KHC) is Saudi Arabia’s largest corporation. Prince Alwaleed owns 95 percent of KHC, which in turn owns large stakes of American corporations, including Citigroup, Apple, and News Corp.
    • Kingdom Hotels International is a KHC subsidiary.
    • Fairmont Raffles Holdings International is an international luxury hotel chain. Mr. Blum has been a member of its board of directors since 2006.
    The Deal: In 2006, Kingdom Hotels and Colony Capital partnered to realize a $5.5 billion merger and acquisition of two hotel chains: Fairmont Hotel and Resorts and Raffles International. The companies were combined into a privately held entity named Fairmont Raffles Holdings International.
    The Blum Connection: To finance the buyout deal, Colony Capital set up a series of private equity investment funds. Sen. Dianne Feinstein has disclosed that Blum Capital Partners invested in the hotel chain merger through a Colony Capital investment fund named Colony HR Co – Investment Partners III. Mr. Blum was appointed to the new corporation’s board of directors by Colony Capital and Prince Alwaleed.
    UC Investment: As the hotel deal was in process, Colony Capital created a related fund (Colony Capital VIII) to develop hotel and casino properties in the Middle East and elsewhere. Between 2007 and 2009, UC’s endowment and retirement funds invested $16.6 million in this Colony Capital fund. This fund did not directly finance the Fairmont Raffles merger, but its hotel and casino funds interlock, each sharing an interest in the success of the others.
    Fallout: California conflict of interest law deems a limited partner in a private equity fund to be invested in the general partner of that fund. Consequently, say the state’s conflict of interest guidelines: “When the limited partner has such an investment, he or she must disqualify [from the decision making process] with respect to decisions affecting the general partner personally or through business entities controlled by the general partner.”
    In sum, Mr Blum’s investment in Colony HR Co – Investment Partners III gave him an economic interest in all of Colony Capital’s funds, including the fund UC invested in, Colony Capital VIII. But, apparently, Mr. Blum did not recuse himself from making any policy or other decision making consideration that could have affected UC’s investment in Station Casinos via Colony Capital VIII.

    Station Casinos
    Las Vegas, Nevada
    The Players:
    • The Fertitta family operates and partially owns Station Casinos, one of the largest casino chains in Nevada. Until three years ago, it was a publicly traded company.
    • Real estate firm CB Richard Ellis bills itself as “the leading global casino real estate advisor.”
    The Blum Connection: Mr. Blum is the chairman of the board and a controlling shareholder of CB Richard Ellis. He is a member of the board of directors of the hotel chain Fairmont Raffles Holdings International, owned by Colony Capital. He is also an investor in a Colony Capital acquisition fund.
    The Deal: In 2007, Colony Capital partnered with the Fertitta family in a $5.7 billion leveraged buyout (taking the public company private). Colony partly financed the deal with Colony Capital VIII. U.S. Securities and Exchange Commission records show that as the deal was being negotiated, Station Casinos hired CB Richard Ellis to evaluate the Fertitta-Colony offering to Station Casino’s public shareholders. CB Richard Ellis was charged with determining if the offering was fairly priced. Mr. Blum’s firm told Station Casino shareholders that the deal was a solid investment.
    UC’s Investment: While Mr. Blum served on the regents’ investment committee, UC invested $16.6 million in the Colony Capital fund (Colony Capital VIII) which bought Station Casinos in a deal that was partly overseen by CB Richard Ellis, a company Regent Blum controls. The deal benefited Colony Capital, a firm to which Mr. Blum is deeply connected through investments and a board directorship.
    Fallout: Not long after it was privatized, Station Casinos declared bankruptcy due to the combined effects of the recession and the $1.6 billion operating debt that its new owners had imposed on the company via the buyout. Former shareholders of Station Casinos claimed that the deal was not in their best interest, as CB Richard Ellis had claimed. The Colony Capital fund that financed the Station Casinos buyout (Colony Capital VIII) has lost more than half its value due to the soured deal, enraging institutional investors. As of December 2009, the value of UC’s investment in Colony Capital VIII had decreased by $6.3 million.

  2. Blum Capital also has real estate investments in West Oakland.

  3. Franklin Graham said:

    Oversight? By the Congress of the United States of Disunity? I think not. As for the Senator, she has proved again how shameless elected officials can be. They right the laws and they strip away any presences of oversight, in part so that they, and their families, can predatorily feed on the misery of the very people who helped to elect them. Where else, but in America can this sort of “non-symbiotic” relationship exist?

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