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GE: We Don't Believe in the Housing Crisis


Housing portfolio still being read through rose-colored glasses.

At a time when commercial real-estate investors are scrambling to unload properties, General Electric (GE), the world's biggest landlord, is looking at 2009 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.
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