A Fond Goodbye to GE Capital Real Estate

When General Electric announced in May that it was selling its GE Capital Real Estate portfolio for about $26.5 billion, the news evoked some feelings of nostalgia, as well a nagging concern in the back in my head.

Many of the real estate investment professionals I work with every day are colleagues from my days at GE Capital, where we all learned the lessons of surviving downturns. GE got its start as a lender by extending credit to buyers of its household appliances, and expanded into not only real estate but a range of businesses, some of which needed advisory help more than money. As a credit company, GE Capital wasn’t subject to the regulatory requirements of banks and insurance companies. So when those institutions were forced to sell off real estate assets at fire sale prices in the early 1990s, GE Capital was virtually the only lender/investor/strategic advisor keeping the market afloat—and earning opportunistic returns in the process.

The sophistication of GE Capital’s financial capabilities gave those of us fortunate enough to work there a tremendous education in areas such as structured finance transactions, workouts and co-development deals, at a time when these were new concepts. GE Capital didn’t travel with the herd of institutional investors, so the firm could buy when the market was at a low point and sell just before prices peaked.

That’s why the sale announcement is a bit disconcerting. Blackstone is expected to buy the bulk of GE Capital’s real estate assets, with Wells Fargo taking on a portion of performing loans and other buyers taking a $4 billion slice of the pie. GE’s rationale is that it wants to focus on growing it higher-yield industrial businesses, but the sale comes at a time when commercial real estate prices are 15 percent higher than the pre-crash peak.

Although the economy crashed in 2008, real estate prices actually peaked in 2007, and many people point to Blackstone’s $38 billion buyout of Equity Office Properties as the high-water mark. Looking at the state of the economy today, hardly anyone thinks the current hot real estate market is about to turn cold. But if the market does crash in the next year, many will point to this deal as the wake-up call that everyone ignored.