Global Courant
Goldman Sachs CEO David Solomon at a Bloomberg Television at the Goldman Sachs Financial Services Conference in New York, Dec. 6, 2022.
Michael Nagel | Bloomberg | Getty Images
Goldman Sachs CEO David Solomon said Monday his bank will announce write-downs on commercial real estate assets as the industry grapples with higher interest rates.
Solomon told CNBC’s Sara Eisen that the New York-based company will take impairments on loans and equity investments related to commercial real estate in the second quarter. Financial firms recognize loan defaults and declining valuations as write-offs that affect quarterly results.
“There’s no question that the real estate market, and commercial real estate in particular, has come under pressure,” he said in an interview on CNBC’s “Squawk on the Street.” “You’ll see some impairments in the lending that would flow through our wholesale provision” this quarter.
After years of low interest rates and skyrocketing office valuations, the industry is facing a painful adjustment to higher borrowing costs and lower occupancies as a result of the shift to remote working. Some property owners have walked out of their holdings instead of refinancing their loans. Defaults are only now starting to show up in banks’ results. Goldman recorded nearly $400 million in impairment charges on real estate loans in the first quarter, according to Solomon.
In addition to Goldman’s lending business, it also took direct interests in real estate as it ramped up its alternative investments over the past decade, Solomon said.
“We think we and others are writing these investments off this quarter and in the coming quarters because of the environment,” said Solomon.
While the write-downs are “definitely a headwind” for the bank, they are “manageable” in the context of Goldman’s overall business, he said.
However, they can be less manageable for smaller banks. About two-thirds of the industry’s loans come from regional and medium-sized institutions, Solomon said.
“That’s just something we’re going to have to work through,” he said. “There will probably be some bumps and some pain along the way for some of the participants.”
In the extended interview, Solomon said he was “surprised” by the resilience of the US economy and saw “green shoots” emerging after a period of subdued activity in the capital markets.
