After an approach from General Electric Company (NYSE:GE), it took hardly four weeks for Blackstone Group LP (NYSE:BX) to clinch the biggest real estate deal ever since the financial meltdown periods of late 2000s. Ironically, the initiation however, took place during the times of crisis, nearly seven years ago.
U.S regulators had introduced new rules on banks and other financial institutions after the Wall Street meltdown. These rules were inclined to curb the risk taking behavior of these financial institutions. For example, capital requirements were made more burdensome.
However, GE announced earlier on Friday that the company will be ready to sell most of its assets, belonging to the GE Capital Real Estate Unit to Blackstone and Wells Fargo & Co (NYSE:WFC). These assets are believed to be nearly $23 billion in value. This will help General Electric to be no longer burdened by regulatory constraints, which it inherited as soon as being designated as a Systematically Important Financial Institution (SIFI).
A panel of regulators called The Financial Stability Oversight Council had labeled four non-bank financial firms as SIFIs. It has set its sights now on asset management industries, to check if their activities and investment may invite any risks to the broader economy. However, Blackstone is smaller than such traditional asset managers. It had mentioned in its latest annual report that it considers itself unlikely to be designated as a SIFI.
Blackstone’s real estate business had grown from $18 billion in assets during 2007, to $80.9 billion as of the end of last December. It was hardly a year ago in 2007, since housing market plumed into a deep hole.
After the financial meltdown, major financial institutions such as Goldman Sachs Group Inc (NYSE:GS), have cut their real estate investment since 2007.
In recent years, Blackstone Group LP (NYSE:BX) had already bought nearly $6 billion in assets from General Electric. This includes the Australian office buildings and Japanese apartments as well. Moreover, GE Capital is also seen as a major financial backbone to Blackstone’s real estate deals.