Goldman Sachs CEO Warns of Commercial Real Estate Writedowns in Q2

Investing.com – Goldman Sachs CEO (NYSE:) Goldman Sachs CEO David Solomon told CNBC on Monday that his bank will issue writedowns on commercial real estate as the sector faces rising rates of higher interest.

Mr Solomon said his bank will post write-downs on loans and equity investments related to commercial real estate in the second quarter.

“There is no doubt that the real estate market, and in particular commercial real estate, is under pressure,” he said in an interview. “You will see impairments in loans that will go through our wholesale provision” this quarter, he added.

It should be remembered that after years of low interest rates and staggering valuations for office buildings, the commercial real estate sector is undergoing a painful reality check in the face of rising central bank rates and in the face of lower occupancy rates due to the rise of remote working.

However, Goldman has already recorded nearly $ 400 million in write-downs on home loans in the first quarter, according to Solomon.

Solomon also explained that in addition to being exposed to a potential commercial real estate slump through its lending business, Goldman has also taken direct equity stakes in real estate.

“We believe that we, and others, are reducing these investments given the environment in this quarter and in the quarters to come,” Solomon said.

It should be noted, however, that Solomon judged that these impairments are “manageable” in the context of Goldman’s overall activity.

However, it is a safe bet that this will be less easy to manage for the small banks, especially since they are the most heavily exposed, with around two thirds of the sector’s loans granted by regional institutions and midsized.

“It’s something we’re going to have to deal with,” Solomon said.

“There will likely be some hardship and some pain along the way for a number of participants,” he warned.