10/23/2009

GE Seeking $3 Billion for Origination Fund

GE Capital Real Estate is seeking to raise up to $3 billion of equity for a fund that would originate senior fixed- and floating-rate commercial mortgages.

The vehicle, GE Capital Real Estate Debt Fund, would underwrite fixed-rate loans to standards that make them eligible for securitization under the Federal Reserve's TALF program. GE's strategy is to securitize the senior portions of the loans and retain the subordinate portions.

If TALF deals couldn't be arranged, the fund could securitize the senior portions of loans via traditional commercial MBS transactions. Floating-rate loans could be syndicated. Or the fund could simply retain whole loans in its portfolio, if necessary.

The vehicle would be able to borrow one dollar for each dollar of equity. That means it would have up to $6 billion of investment power if the equity goal was achieved. GE itself will kick in 10% of the total equity, or up to $300 million.

The managers would shoot for a 10-12% return, assuming the exit strategy of securitization and syndication is available. For retained loans, the return goal is 7-8%.

The fund would target loans on office, multi-family, industrial and retail properties in the U.S., Canada and Mexico. Loan terms would be 3-5 years. Loan-to-value ratios wouldn't exceed 65%. Proceeds from maturing loans could be reinvested. Investments would be fully liquidated 7-9 years after the first equity close.

GE is the latest in a series of players dipping their toes back into the lending market. As previously reported, Deutsche Bank and Goldman Sachs launched origination programs this year. RBS is putting together a multi-borrower CMBS deal (see article on Page 1). AREA Property Partners and CIBC are seeking to raise $250 million of equity for a fund that would originate up to $750 million of senior commercial mortgages. And a few mortgage REITs have conducted IPOs.

GE, like RBS, is hoping to capitalize on the TALF program, which provides low-cost loans to buyers of high-grade structured securities, including CMBS, in a bid to revitalize securitization. In theory, TALF financing should drive down CMBS spreads, lowering the funding costs for securitization programs and enabling them in turn to lower rates on CMBS loans. The program, formally known as the Term Asset-Backed Securities Loan Facility, is scheduled to expire on June 30, although it's possible it could be extended.

The GE fund's loans would be sourced by GE's in-house staff. With limited exceptions, GE plans to funnel all of its senior mortgages into the vehicle. Investment decisions would be made by a seven-person committee, including Joseph Parsons, Alec Burger and Skip Wells. Parsons is chief executive of GE Capital Real Estate's global investment management unit. Burger is president of GE Capital Real Estate Americas. Wells this summer was named GE Capital Real Estate's fund manager for senior secured debt investments.

The fund would charge a 1% management fee. After investors receive an 8% preferred return, GE is entitled to 20% of the profits.

Back Print