Peter Pays Paul

WSJ.com is reporting that GE recently took ownership of a an apartment portfolio in Alabama in Risky GE Apartment Loan:

General Electric’s massive real-estate operation likes to brag about how its lending business is among the most conservative around. That isn’t the case in at least one deal.

GE Real Estate, a unit of GE Finance, foreclosed Jan. 6 on a portfolio of 2,284 apartments in Alabama. Brooklyn, N.Y.-based Collins Group LLC with backing from New Jersey-based Lightstone Group bought the apartments in late 2006 for $155 million. GE lent Collins $148 million in a two-year bridge loan, according to several people familiar with the matter. That would put the original loan-to-value ratio at 95%, not very conservative.

As this deal demonstrates, the purchase price and rent assumptions made by the borrower were not feasible to support the debt load on the property.

This is an example of some of the wild deals that were done in 2006 and 2007. Many smart investors are going to sit on the sidelines until these deals are cleared out of the market.

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