Pralle leaves GE
Michael Pralle: high-growth strategy
Michael Pralle abruptly departed GE Real Estate at the end June, having overseen huge growth in direct equity investing around the world at the unit, which, in the 1990s, had concentrated simply on lending to real estate companies. Pralle, who joined GE Capital in 1989 and ran the business in Asia, changed all that in his time as CEO of the real estate unit. Through a period of surging gains for the asset class, he grew its assets and earnings at a remarkable clip. As Liquid Real Estate pointed out in its profile of GE Real Estate in our last issue, that growth surge had come to present the company with a tricky problem. Real estate assets on the GE’s balance sheet grew from $21 billion in 2000 to $59 billion by the time Pralle left. The real estate unit closed $29 billion of deals in 2006 alone. But GE chief executive Jeffrey Immelt grew uneasy. He did not want his company, now deriving 10% of its earnings from real estate, to be classed as or trade on the multiples of a real estate company. Nudging up against these corporate balance sheet limits, GE Real Estate began distributing assets it had originated to off-balance-sheet and third-party vehicles. Pralle pointed out that this entailed forgoing some expected earnings.
To the end, Pralle kept his foot fast to the floor. Just three days before his departure, GE Real Estate announced that Arden Property, the Reit it had acquired in May 2006 to grow its exposure to the US west coast, has bought 106 office properties from Blackstone that the private equity firm had chosen to disgorge from the EOP portfolio.
Perhaps tellingly, in one of the last significant international deals of Pralle’s tenure, GE Real Estate, which had made an early and profitable entry into Japanese real estate before many international investors shared a belief in its recovery, sold $309 million of its Japanese properties to a Japanese Reit, LCP Investment Corp, and at the same time bought $117 million of shares in LCP. Sources at GE Real Estate say the released capital was upstreamed to GE and not designated for reinvestment in real estate.
GE has offered no explanation for Pralle’s departure and he is yet to resurface. One source says the former McKinsey consultant harboured a desire to "do something more entrepreneurial".
With uncertainty now surrounding real estate asset values, GE has sought to place the unit in a safe pair of hands. Ronald Pressman, a 27-year GE veteran and most recently CEO of GE Asset Management, which has $197 billion of assets under management, has taken over from Pralle. Pressman has undertaken a thorough review of the business before making any announcements on future strategy.