GE Capital Retooling Real Estate Portfolio

It looks like General Electric Co. in the US has started to look again at retooling it’s real estate lending portfolio after losing over a billion dollars in the last year or so with their GE Capital sibling.

Over the last three years there have not only been significant losses from quarter to quarter for GE Capital, but the entire portfolio was shrunk 30% since 2008. There current $67.6 billion portfolio will be further shrunk to about $50 billion, down almost half from the $95 billion of 2008.

In the 2000 – 2007 economic boon GE Capital class lenders (vs. banks and other options) accounted for up to 10% of the loans, and they specialized in risky “value-add” developments (value add developments tend to focus on construction, improvement or rehabilitation of property – meaning the loans that require additional, and successful, development before reaching the value of the loan). In many cases during the crash, the development of property for these value-add loans failed to reach the level of the loan. Hence the significant losses and GE Capital removing itself from the lending market.

Their toe back in the water (as described by GE Capital spokesman John Oliver) is really that. They recently did an $85.5 million dollar placement.

What does this mean for the average US home owner or purchaser – not a whole lot immediately, but it may indicate that after three years of a very tight lending environment that some companies are seeing a possible (though with extensive due diligence) opportunity to generate wealth in the new-construction, improvement or rehabilitation of real estate. If that trend follows, that would mean we are approaching a nice bottom in the real estate market for selected regions and type of real estate. But at least new lending facilities are opening up period.

The US housing situation has taken a battering, and if I had my thoughts, I wouldn’t think that we’re going to see an upside any time soon. Even if the US government can figure itself out of the current budget fiasco, the makings of the fiasco still loom, and the economy hasn’t figured out what to do with the current unemployed, much less grow at a rate that can absorb all the new people entering into the workforce. To me there is still a very solid downward pressure on wage and benefits that will continue for many years, perhaps a good decade or more.

But if we can see some new growth for value-added development, not only may we see some pickup in the creation of new condominiums, but importantly for the US – maybe the rehabilitation of some of these monster-abandonment condos which now need significant funds to bring them to inhabitable status again.