GE: We Don't Believe in the Housing Crisis
Housing portfolio still being read through rose-colored glasses.
Tomorrow, when the company releases details of its finance arm's real-estate holdings, investors may get a better sense of just how exposed they are to tumbling rents and rising vacancies. According to the Wall Street Journal, GE owns about $34 billion in commercial real estate, which it believes may slip in value this year by a mere 1.5%.
Compared to a 60% decline in the Dow Jones REIT Index over the past 12 months, that forecast seems unusually optimistic.
The trick here -- like that at the heart of the mark-to-market debate -- is how GE classifies its property holdings. Since they were primarily bought with cash (and thus aren't subject to the whims of creditors), the company views its assets as long-term holdings. Cash flow, not resale price, determines the value it slaps on assets for accounting purposes.
But with the market for commercial real estate essentially frozen, tenants demanding better lease terms, and the company scrambling to raise capital, GE may find dumping properties onto an illiquid market is an unpleasant experience.
Commercial real-estate losses went a long way toward sinking Wachovia -- ultimately purchased by Wells Fargo (WFC) -- and Lehman Brothers, which ultimately collapsed under the weight of housing bets gone wrong.
GE is hoping its conservative use of leverage can save it from a similar fate.
The information on this website solely reflects the analysis of or opin=
=3D =3D3D ion about the performance of securities and financial markets by =
the wr=3D iter=3D3D s whose articles appear on the site. The views expresse=
d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi=
a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web=
site is intended to con=3D stitute a recom=3D3D mendation or advice address=
ed to an individual investor =3D or category of inve=3D3D stors to purchase=
, sell or hold any security, or to =3D take any action with re=3D3D spect t=
o the prospective movement of the securit=3D ies markets or to solicit t=3D=
3D he purchase or sale of any security. Any inv=3D estment decisions must b=
e made =3D3D by the reader either individually or in =3D consultation with =
his or her invest=3D3D ment professional. Minyanville write=3D rs and staff=
may trade or hold position=3D3D s in securities that are discuss=3D ed in =
articles appearing on the website. Wr=3D3D iters of articles are requir=3D =
ed to disclose whether they have a position in =3D3D any stock or fund disc=
us=3D sed in an article, but are not permitted to disclos=3D3D e the size o=
r direct=3D ion of the position. Nothing on this website is intende=3D3D d =
to solicit bus=3D iness of any kind for a writer's business or fund. Mi=
ny=3D3D anville mana=3D gement and staff as well as contributing writers wi=
ll not respo=3D3D nd to em=3D ails or other communications requesting inves=
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter