When REAL ESTATE FORUM last profiled GE Capital Real Estate in 2007, the firm was on an aggressive expansion path. Namely, growing its equity activities, particularly in global markets. Its focus was on acquisitions and operations, while most of its debt activity involved restructuring its loan portfolio.
Yet after laying low the past few years, the Norwalk, CT-based firm emerged from the Great Recession and downturn with a new expansion. This time, however, it’s on the other end of the capital markets spectrum, shifting from an equity player to a debt provider, particularly in the domestic markets.
Today, GE executives will say lending is the firm’s core business, although it still has a $25-billion portfolio of assets it actively manages. As of midyear, 54% of its $58-billion total real estate holdings consisted of debt.
The shift in focus, says GE Capital Real Estate’s president and CEO, Mark Begor, was spurred, simply, by returns. “We just found that we could get very attractive returns in the lending space, and the US market came back first, so it was a place we could take advantage of it from a lending standpoint,” he says. “On the equity side, although the returns were great when the market was on an upswing, they were now too volatile. From our corporate profile, it was a lot better fit to be a lender than to an operator.”
With values improving and margins reasonably attractive, North America president Alec Burger says it’s a great point in the cycle to be a lender. “To some extent it’s ‘back to the future’ for us, since we actually grew up as a North American lending business,” he notes, although the firm hasn’t abandoned overseas markets. It’s done transactions in Mexico, Canada, the United Kingdom, France, Japan and Australia, in addition to its US business. “There’s a window that’s quite attractive in terms of growing our global debt franchise.”
The shift in focus was also part of parent company GE Capital’s master plan to reduce its overall size. At its peak, GE Capital’s holdings were as high as $570 billion, with commercial real estate accounting for almost $95 billion of that total. Today, the parent firm is down to $425 billion, with real estate at a $50-billion share…
…To read the rest of the story, please visit the October 2012 issue of Real Estate Forum.