GE is planning to cut its real estate portfolio by as much as $10 billion as part of a package of measures aimed at bolstering the US conglomerate.
GE’s chief financial officer Keith Sherin said on a conference call today that the size of the firm’s portfolio had caused concern among investors, prompting executives to reduce assets from $90 billion to $80 billion in 2009.
Sherin said GE had invested a “significant amount of capital” to take advantage of the current market opportunities. But he said it was also time to “de-emphasis equity,” adding that GE would downsize the amount of new equity it invested.
“Our real estate business is down,” Sherin went on to say, noting that the main risk left to the company’s third-quarter earnings was how many real estate deals it is able to close in the next few days. GE warned during the call that the turmoil in the global credit markets could drive profit down as much as 12 percent this year.
Two of GE Capital’s biggest businesses are loans to mid-sized companies and investments in commercial real estate.
GE chief executive officer Jeff Immelt said on the call: “We’ve never seen really a time of volatility like we’ve seen in the last month or so.” GE’s diversification is intended to help the company ride out any downturn, but weakness at GE Capital, which accounts for about half its profit, has outstripped its industrial business.
In March, GE Real Estate, a business unit of GE Commercial Finance, revealed it was planning to launch private equity real estate funds for the first time making direct investments in the industry for 15 years. GE Real Estate chief executive Joe Parsons said the funds will not focus on distressed opportunities but rather on properties that are discounted due to current pricing adjustments. The firm is looking to raise $1 billion to $3 billion for the first two funds.