11.06.10

Property portfolio to be cut from $80bn to $40bn

GE Capital, the finance arm of General Electric Co, is aiming to cut its property portfolio by half, from $80bn to $40bn.

The reduction is part of a global drive to shrink GE Capital’s entire asset base from $650bn to $400bn. The company had a torrid credit crunch and has had to rely on a cash injection from its parent company and US government guarantees to survive.

Speaking at an investor conference last Friday, chief executive Mike Neal said that GE Capital had learned from its problems – notably that it was too large, and had taken too many risks.

As such, he said, the business would be looking for safer investments. As part of plans to shrink, it will sell some businesses outright and also plans not to write new loans when they expire.

In particular, GE Capital’s property assets have been hit badly by the fall in values and Neal described that area of the business as “still challenging, but improving”.

GE Capital invests directly in property and also provides loans secured against commercial property.

Since 2008, the value of the company’s portfolio has declined by $7bn. It has also lost around $1.6bn on its debt portfolio.

In the UK, it is a joint venture partner on schemes such as the Ark refurbishment in Hammersmith and 125 Old Broad Street in the City of London, the former London Stock Exchange.

Neal said that the firm plans to halve its property portfolio and shift the way it does business in the commercial real estate sector away from ownership stakes and towards loans.

Speaking at the Sanford C Bernstein Strategic Decisions Conference 2010, he said:

“I wish we didn’t have as much real estate as we do. We were bigger than we should have been in real estate coming into this cycle.

“Our losses on real estate, while notable, are now manageable. We want real estate to be below 10% of our assets and we will make it smaller largely by exiting properties. We want to move to more of an asset management business but that will take a while.”

Neal did not give details of when he would like to reach the goal of $40bn, but said that GE had a strong business model, with a strengthened liquidity position and strong risk practices. He also said losses had peaked and he expected portfolio margins to improve in 2010, and the business to be profitable.

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Source: Property Week (www.propertyweek.co.uk)