David Solomon, chief executive officer of Goldman Sachs Group Inc., during a Bloomberg Television at the Goldman Sachs Financial Services Conference in New York, US, on Tuesday, Dec. 6, 2022.
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Goldman Sachs CEO David Solomon said Monday that his bank will disclose markdowns on commercial real estate holdings as the industry grapples with higher interest rates.
Solomon told CNBC’s Sara Eisen that the New York-based firm will post impairments on loans and equity investments tied to commercial real estate in the second quarter. Financial firms recognize loan defaults and falling valuations as write-downs that impact quarterly results.
“There’s no question that the real estate market, and in particular commercial real estate, has come under pressure,” he said in the 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 lofty valuations for office buildings, the industry is in the throes of a painful adjustment to higher borrowing costs and lower occupancy rates thanks to the shift to remote work. Some property owners have walked away from holdings rather than refinance their loans. Defaults have just begun to show up in banks’ results: Goldman posted almost $400 million in first-quarter impairments on real estate loans, according to Solomon.
On top of Goldman’s lending activities, it also took direct stakes in real estate as it ramped up its alternative investments in the last decade, Solomon said.
“We think that we and others are marking down those investments given the environment this quarter and in the coming quarters,” Solomon said.
While the write-downs are “definitely a headwind” for the bank, they are “manageable” in the context of Goldman’s overall business, he said.
They may be less manageable for smaller banks, however. About two-thirds of the industry’s loans are originated by regional and midsize institutions, Solomon said.
“That’s just something that we’re going to have to work through,” he said. “There’ll probably be some bumps and some pain along the way for a number of participants.”
In the wide-ranging interview, Solomon said that he was “surprised” by the resiliency of the U.S. economy and that he was seeing “green shoots” emerge after a period of subdued capital markets activities.