General Electric Co.’s lending arm agreed to provide about $800 million to help finance Blackstone Group LP’s $1.08 billion purchase of U.S. suburban office buildings, said two people briefed on the transaction.
The loan marks GE Capital’s first large commercial real estate financing since the credit crisis following Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, according to the people, who asked not to be identified because the information is private. Blackstone is buying the properties, located mostly in the Midwest and South, from Duke Realty Corp.
The deal with Blackstone, the world’s largest private-equity firm, matches GE’s strategy of concentrating on debt investments at GE Capital’s property unit while lessening the equity portion. GE, based in Fairfield, Connecticut, yesterday reported third-quarter earnings that matched analyst estimates as it recorded narrower-than-expected losses from the real estate division.
“You’ve seen more liquidity come into the real estate property market,” GE Chief Financial Officer Keith Sherin said in a telephone interview yesterday. “There’s quite a bit of investment by international funds, strategic funds in the space.”
The company is resuming commercial-property financing as some Wall Street lenders pull back from making loans for real estate purchases. Widening spreads in the market for commercial mortgage-backed securities are eroding profits on the deals. The extra yield investors demand to hold the top-ranked portion of bonds backed by commercial mortgages jumped to the highest level since February 2010 earlier this month, according to a Barclays Capital Inc. index.
GE Capital’s real estate unit had a third-quarter loss of $82 million, narrowed from $405 million a year earlier and $335 million in the previous three months. The results were better than the estimates of analysts at firms including Credit Suisse Group AG and William Blair & Co.
GE Capital plans to hold the mortgage on the deal with Blackstone, one of the people briefed on the financing said. The rest of the financing will come from the equity in Blackstone’s seventh real estate fund, the people said.
GE may choose to eventually syndicate the loan as it has in previous transactions, one of the people said.
John Oliver, a spokesman for GE Capital, declined to comment yesterday, as did Blackstone spokesman Peter Rose.
Blackstone is buying 82 buildings with a combined 10.1 million square feet (938,000 square meters) of space, Indianapolis-based Duke Realty said in a statement Oct. 20. They include properties in the suburbs of Chicago, Minneapolis, Dallas and Atlanta.
Blackstone has invested more than $7 billion in real estate this year, and has raised $4 billion for its latest property fund that the New York-based firm expects to exceed $10 billion, Chairman Stephen Schwarzman said Oct. 20.