In an effort to separate from its finance business, General Electric is on the verge of selling its $30billion dollar real estate portfolio. Their finance business has been profitable for the company, but its riskiness has been a source of concern for investors. At the forefront of talks are the private equity firm, Blackstone and Wells Fargo. General Electric’s portfolio includes office buildings, shopping malls, and other commercial property spread around the world.
GE’s executives have come to see the majority of the company’s 500 million dollar lending business as detachable. GE took a similar approach in regards to its appliances business, which the company sold to Sweden’s Electrolux last year. At the same time, GE has made it clear that it will hold on to functions like aircraft leasing along with energy and health-care financing. GE’s refocus comes at a time when CEO, Jeff Immelt is under immense pressure to make the company more industrial-based. This strategic shift is an attempt to please shareholders who have been displeased with the stock’s weakness in recent years. Although, the company’s shares did jump 72 cents when news of the real estate portfolio sale hit the media.
GE Capital finances $500 billion in assets making it the country’s seventh largest bank. Because of their substantial asset holdings, the company is treated as a bank and faces stricter regulatory measures. The more constricting regulatory measures make it tougher for the company to profit from selling its real estate holdings. Roughly 9 billion of the portfolio is stakes the company has taken in properties, while another 20 billion is allocated to debt issued by property owners. Blackstone is looking to buy GE’s ownership stakes itself and split the debt portfolio with Wells Fargo. If the deal follows through, it will be Blackstone’s largest deal since it bought Hilton Worldwide holdings and Sam Zell’s Equity Office Properties Trust in 2007. GE’s portfolio isn’t filled with trophy office towers. Instead, it contains office parks in western suburban cities. Overall, scaling back in the finance business means letting go of a big profit driver, but Mr.Immelt has vowed to decrease GE capital’s share of the profits from 42% to 25% by 2016.