Goldman Sachs CEO David Solomon announced on Monday that the bank will disclose markdowns on its commercial real estate holdings in response to the challenges posed by higher interest rates. The firm will report impairments on loans and equity investments linked to commercial real estate in the second quarter.
Solomon acknowledged that the real estate market, particularly the commercial sector, has experienced significant pressure due to rising borrowing costs and decreased occupancy rates resulting from remote work trends. Some property owners have chosen to abandon their assets instead of refinancing their loans, leading to an increase in loan defaults and declining property valuations.
Solomon noted that Goldman Sachs, in addition to its lending activities, has made direct investments in real estate over the past decade, which are also expected to be marked down due to the current environment. While these write-downs present a challenge for the bank, they are considered manageable within the broader scope of Goldman’s business.
However, smaller banks may face greater difficulty as approximately two-thirds of industry loans are originated by regional and midsize institutions. Solomon acknowledged that the industry will have to work through these issues, anticipating bumps and pain for participants along the way.
Despite these challenges, Solomon expressed surprise at the resilience of the U.S. economy and mentioned the emergence of positive signs in the form of increased capital market activities.