Changes are afoot at Stamford, Conn.-based GE Capital Real Estate. The company, with assets of more than $345 billion, has a new president and a new organization. Improved efficiency and a focus on international markets are the goals. SCW talked with Joan Lavis, senior vice president of marketing, to find out what's in the works.
Q. What percentage of your lending do you use for retail financing? And for which purpose?
A. Our CMBS pools generally 30% to 35% retail. We aggressively pursue grocery-anchored centers, shadow-anchored centers and have a more limited appetite for unanchored retail. We generally require rollover reserves and are very focused on properties where anchors enjoy a superior market share.
Q. What kind of loan programs do you have for the retail industry?
A. We offer fixed and floating rate programs, and leverage equity programs for clients who have a great track record, a strong business plan, good locations and a strong tenant mix.
Q. Describe the company's involvement with CMBS financing.
A. Last year we originated $1.6 billion of fixed-rate CMBS loans, and we plan to grow that number even more during 2001.
Q. What is the interest rate climate right now with CMBS?
A. With the Feds tightening and interest rates going down, CMBS has become more attractive vis-a-vis other products.
Q. Do you believe the U.S. retail real estate market has dried up?
A. No we don't. In fact, we have more than 50 originators dedicated to this market. We think opportunities may be different depending how the economy shapes up, but with our breadth of products, we are poised for all economic climates. We have been in the market for 30 years and remained active throughout all types of cycles. In fact, we thrive during downtimes when competitors often bail out.
Q. What is happening overseas to make you think there is great opportunity there?
A. We've been focused on the international markets for years. For instance, we have been in the United Kingdom for 11 years where we have enjoyed tremendous success. Currently, we are in more than 15 international countries and more than 50% of our income is generated outside the United States. Our strategy is to diversify geographically so we can weather different cycles around the world. We are continually researching new markets. Once a market is determined a good target, we open an office staffed with both local talent and U.S. talent to leverage our experience.
Q. What are the risks and benefits of expanding into international markets? Which markets offer the most potential and why?
A. The risks of a foreign country are not knowing the written and unwritten laws and rules. But because the barriers to entry are higher, there is less competition, especially in early parts of cycles. We compensate for the risks by hiring local talent and partnering with local players. Currently we are focused on Europe and Asia because we think certain countries in these markets are in rising cycles.
Q. What types of lending do you hope to achieve overseas?
A. We predominately focus on equity overseas because this is where we see the most opportunity, but we also offer structured debt with three- to five-year terms and institutional debt for syndication.
Q. What is your exit strategy for the international market?
A. We are a global company and don't see ourselves retreating from the international marketplace. As mentioned before, we have strategically built up our international income base to over 50% and we intend to be a player for the long haul. On a regional basis, our exit strategy for individual properties is generally three- to five-years through a private sale.
Q. What are the goals for the company's new president in regards to international expansion?
A. We recently reorganized to sharply focus our global business and drive efficiencies in a highly competitive market environment. Our goals, driven through GE Capital's new president Michael Pralle, and executed by all 800+ associates, are to expand internationally, focusing more on the customer and processes in the United States, including “digitization,” and at the same time increasing our strategic ventures.
Q. How much of your assets are in international markets?
A. Roughly, 40% of GE Capital Real Estate's assets are international.
Q. What are your biggest challenges currently and what do you think they will be in the next 5-10 years? How are you addressing the current issues and planning for future ones?
A. The biggest challenge in commercial real estate has been managing through the volatility. We do this with an experienced team, conservative underwriting, and geographic diversity.
It is often difficult to manage through in markets where there is aggressive competition that does not understand the risks they are taking and temporarily damage the market. We continually see this whether it involves foreign companies or new entrants. We overcome the challenge with a long-term customer focus. Additionally, we are continually trying to reduce our cost base through digitization so we can offer competitive pricing without taking undue risk.
Q. How do you decide which market to enter and how to enter it?
A. The old-fashioned way; by research, finding good partners and kicking the tires. We also continually ask our clients what they want and need from us.
Q. How do you deal with the risks involved with the investments?
A. There are a variety of ways: structure, active asset management and partnering with experienced veterans such as JPL, Cabot Trust and Storage USA.
Q. How has structured financing affected GE Capital's business?
A. It has been our bread and butter business. Our ability to structure around issues is one key feature that truly distinguishes us from our competition.