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Peer to Peer: Start Small, Think Big

By Hank Zupnick

June 15, 2005 — CIO —

The CFO of GE Real Estate was perplexed. "Let me make sure I heard you right. We’re willing to fully fund this project, but you only want 10 percent of the money?"

In today’s tightly managed, cost-conscious business environment, it’s hard to resist saying yes to any funding that’s offered. It’s even harder to explain why you’d rather accept a much lower level of funding when there’s no guarantee that the money will be available if you need it later on.

But that’s exactly the approach I took when our CFO offered to fund a businesswide data warehouse that would help us grow and manage our global commercial real estate business. Before I explain my reasons, let me tell you why we needed a data warehouse in the first place.

The commercial real estate financing business has been getting more competitive over the past few years, as more banks and other financial services companies enter the market. GE Real Estate has a strong track record of profitability; net earnings have increased by 10 percent or more each year since 2000. Even so, we knew we needed to be able to provide our customers with faster delivery of quotes and approvals, while at the same time pricing between 20,000 and 30,000 deals a year. Much of the information GE Real Estate’s managers relied on was stored in spreadsheets or in hard-copy reports. Figuring out how GE’s loans were performing in each particular market and what kind of risks should be factored into a $30 million deal—a fairly routine bit of analysis—required employees to gather data manually from several sources. Errors are unavoidable in a manual process, and they could be costly: Misunderstanding GE’s loan-portfolio performance in Denver or Dublin could mean charging a customer too low an interest rate and exposing GE to too much risk. Charging too high a rate could prompt the customer to take a lower rate from another lender.

Furthermore, with more than 8,000 buildings in our portfolio around the world, we needed a fast, efficient, accurate way to track the performance of the properties we were financing. This included better insights into the corporate health of our borrowers’ individual business tenants. For instance, if a telemarketing company in Geneva was going out of business, vacating five floors of a building on which GE holds a $10 million note, the loan might be at risk. That’s the kind of information the head of GE Real Estate’s European division needs to know.

 

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