GE Commercial Finance Real Estate, the world’s largest property business, is to spend $5bn in Asia and $3bn in Mexico as it ramps up its exposure to the markets.
The group, part of GE Finance, the banking arm of GE, plans a spending spree on property in the next two years in more developed countries such as Japan, Korea and Australia. This would mark a huge increase from GE’s current Asian property holdings of about $3bn, Michael Pralle, GE Real Estate president and chief excutive, told the FT.
Spreads between the cost of borrowing and yields in Asian real estate markets were very attractive, he said. In Japan, for example, the company could borrow at 1 per cent and get a 5 per cent yield on a building, he said.
The group is also mulling a move into the fledgling Chinese investment market, which would be through joint ventures.
GE Commercial Finance Real Estate directly owns $35bn of global property, $50bn including joint ventures and securitised debt.
The business has increased its international exposure considerably, from 25 per cent five years ago to more than half today.
The move to Asia and other newer markets such as eastern Europe and Mexico, comes amid fears that US commercial property has peaked. GE has cut its US property exposure from $12bn to $6bn in the last three years, Mr Pralle revealed.
Among the sales was its self-storage business which went for more than $3bn this year. Yet Mr Pralle said GE would not be a net seller in the near future. The group was still buying hotels and apartments and had bid on two recent $1bn-plus sales, Keystone and Gables, he said. Mr Pralle revealed that GE was set to more than double its Mexican property assets from $2bn to $5bn as soon as possible.
Yields in Mexico were still about 11 per cent, compared with 7 per cent in the US, he said, more than compensating for Mexico’s risk profile. “If we could spend the money in the next year that would be great although it’s unlikely to happen that fast,” he said.
With potential margins of 2.5 times those in the US the risk of Mexico was “mis-priced”, he added.