Investors in less-than-perfect properties are noticing that GE Capital, an important lender that was largely absent from real estate lending in the past couple of years, is slowly moving back into market.
“We are now sticking our toe back in the water, but it's our little toe,” said GE Capital spokesman John Oliver.
Fairfield, Conn.-based GE Capital was a major lender to buyers of value-added and opportunistic real estate before the financial crisis, and its absence has been sorely missed, sources said. Most lenders these days are interested in offering debt for stable real estate. Not as much debt is available for less stable properties, especially since the commercial mortgage-backed securities market is a shadow of what it once was. Indeed, many opportunistic real estate investors have paid cash, hoping that debt at reasonable terms will become more available in another year or two, industry insiders say.
Last month, GE Capital made its first real estate loan since the debt crisis. And sources said there will be more. While Mr. Oliver declined to speculate on whether the company would make more loans, real estate investment managers and others say GE Capital is returning, however slowly, to the market.
GE Capital dramatically halted lending with the worldwide financial meltdown, when the lender found itself overallocated to real estate, sources say. But GE Capital's commercial real estate portfolio, while still losing money, is expected to be in better shape, with lower losses and higher margins in 2012, according to second-quarter performance numbers executives of parent General Electric Co. shared with analysts on July 22.
GE lost $335 million in its real estate portfolio in the second quarter. That is $190 million less than the portfolio lost in the second quarter of 2010 and $23 million less than in the first quarter of 2011, said Keith Sherin, GE's chief financial officer, in the July 22 conference call.
That real estate portfolio also is being reduced; it was $67.7 billion as of June 30, down from $95 billion in 2008, said GE Capital spokesman Mr. Oliver. The portfolio consists of 58% debt and 42% equity; those percentages are not expected to change dramatically as the portfolio is reduced. The firm plans to decrease the portfolio to about $50 billion while increasing its global investment management business, he said.
GE Capital's latest loan was for $85.5 million, to a joint venture of Morgan Stanley Real Estate Investing and Kearny Real Estate Co. The loan was used to finance the acquisition of 35 non-performing loans and six properties in Los Angeles, San Francisco, metropolitan New York and other areas. The portfolio included office, industrial, condominium, multifamily and retail properties. The portfolio was sold at a “big discount” and included fairly stable, predictable assets that the managers have experience running, Mr. Oliver said.
Even so, GE Capital's due diligence was extensive, Mr. Oliver said. “We ran a very tight program,” he said.