RE Sale Marks First Step in GE Transition

(This article has been updated with additional information.)

FAIRFIELD, CT—The GE that emerges from the company's simplification process will derive more than 90% of its revenues from high-return industrial businesses, including aircraft, healthcare and energy. At the peak of the last cycle, when GE's financial services and real estate holdings were at their peak, the industrial side represented less than half that percentage of the total.

In 2015, however,  “the business model for large, wholesale-funded financial companies has changed, making it increasingly difficult to generate acceptable returns going forward,” CEO Jeffrey Immelt wrote in a letter to shareholders Friday. As a significant first step in moving away from that business model toward a focus on industrial, GE announced Friday that it would sell the bulk of its GE Capital Real Estate platform to the Blackstone Group and Wells Fargo.

The sale to Blackstone and Wells Fargo encompasses no fewer than five transactions. In the largest of the five, Wells Fargo has agreed to purchase $9 billion in performing first mortgage commercial real estate loans backed by properties across the US, UK and Canada.

Blackstone's latest flagship global real estate fund, BREP VIII, which reportedly has lined up $15.8 billion of commitments, has agreed to purchase GE Capital's US equity assets for $3.3 billion. These assets are primarily office properties in Southern California and the Seattle and Chicago metro areas; a GE Capital spokeswoman confirms that the sale represents the entirety of the company's Arden Realty platform.

In the debt arena, Blackstone Mortgage Trust will buy a $4.6-billion portfolio of first mortgage loans, mainly in the US. Wells Fargo will provide the financing. “BXMT will be adding $4.6 billion of loans, which effectively doubles the size of our asset base,” says Michael Nash, the REIT's executive chairman. “We expect our stockholders will realize significant value accretion from this greater scale.”

Outside the US are two more transactions worth a combined $6.2 billion. Blackstone's European real estate fund, BREP Europe IV, has agreed to buy GE Capital's European equity real estate assets for €1.9 billion, or slightly more than US $2 billion. These consist of office, logistics and retail assets, located mainly in the UK, France and Spain. The logistics assets will be integrated into Blackstone's European logistics platform, Logicor, while the retail assets will become part of its European retail platform, Multi.

Finally, BREDS, Blackstone's real estate debt fund, has agreed to purchase performing first mortgage loans in Mexico and Australia for $4.2 billion. GE on Friday said that other buyers had signed letters of intent for additional real estate assets in pending deals that would be worth a combined $4 billion. GE Capital's spokeswoman tells GlobeSt.com that the potential buyers cannot be publicly identified as yet.

In an investor presentation, GE also noted an additional $3 billion in real estate assets that it intends to divest by the end of 2015. Also targeted for disposition are most of GE Capital's commercial lending and leasing segment, and all consumer platforms, including all US and international banking assets. GE says it will retain its “vertical” financing businesses—including GE Capital Aviation Services, Energy Financial Services and Healthcare Equipment Finance—that are tied directly to its core industrial businesses.

“This was a hard decision and a big change for GE,” Immelt wrote to shareholders. “However, it is right for the company.” Immelt's predecessor, Jack Welch, reportedly agrees, telling CNBC on Friday, “It looks like a smart move and right for the changing financial landscape.”

In the deals announced Friday, Eastdil Secured advised Blackstone and Wells Fargo, while Simpson Thacher & Bartlett LLP acted as legal counsel to Blackstone and Dechert LLP acted as legal counsel to Wells Fargo. GE Capital was advised by Kimberlite Group and BofA Merrill Lynch and represented by Hogan Lovells.