The US bank Goldman Sachs is feeling the effects of the crisis on the real estate market. Ironically, Elon Musk has aggravated the situation for the Wall Street house.
• Goldman Sachs sees rise in defaults on commercial real estate loans
• Failure to pay Twitter rent leaves real estate investment firms in arrears
• Goldman Sachs still relatively unaffected
The rise in defaults on commercial real estate loans weighed on US bank Goldman Sachs in the first quarter, the Financial Times reports.
“Real estate affects us”
Citing data from the Federal Deposit Insurance Corporation, the paper put the rise in the value of delinquent commercial real estate loans to $840 million in the first quarter, a massive 612 percent increase.
Across the US banking sector, commercial real estate defaults rose less significantly over the same period, with non-performing commercial real estate loans nationwide up 30 percent to $12 billion.
“There is no question that the real estate market, particularly commercial real estate, has been under pressure,” Goldman Sachs CEO David Solomon confirmed on CNBC’s recent show Squawk on the Street. Although his financial house has a relatively small loan portfolio compared to other lenders, it has a reasonable share of real estate investments. “Real estate affects us,” said the bank manager.
Elon Musk as part of the problem
The billionaire Elon Musk is said to be to blame for the significant increase in defaults in commercial real estate loans, specifically the payment behavior of his social media group Twitter. The company has reportedly failed to pay rent due on its offices since November, prompting Twitter to file a lawsuit from Columbia Property — a real estate investment firm that owns several of Twitter’s offices. According to the FT, Musk reportedly communicated to employees that he had no plans to resume rent payments or settle arrears. This, in turn, is said to have caused Columbia Property to default on its lenders, including Goldman Sachs, in February. The financial house belongs – along with Citigroup and Deutsche Bank – to a group of banks that have loaned Columbia Property $1.7 billion for seven office buildings in San Francisco and New York – two of which house offices of Twitter.
Goldman Sachs still relatively unaffected
The comparatively manageable exposure to non-performing loans is unlikely to have a major impact on Goldman Sachs’ business development. “For Goldman, lending is not that important,” the FT quotes Christopher Kotowski, banking analyst at Oppenheimer.
The situation is different for the financial house’s rivals: Wells Fargo and Bank of America are significantly more involved in commercial real estate loans. According to the FDIC report, outstanding loans secured by commercial real estate in the first quarter were $91 billion at Wells Fargo and over $60 billion at Bank of America.
This development also worries Goldman Sachs boss Solomon: Even if the situation is manageable for his financial house, 65% of commercial loans fall under the regional and medium-sized banking system. It’s just something “we have to deal with,” Solomon said. “And for some market participants, there will likely be some bumps and pains along the way,” the bank executive warned CNBC.
Musk also sees the commercial real estate market in trouble
Elon Musk had recently come to a similar assessment as Solomon. In his view, real estate prices – especially commercial real estate – are falling. “We haven’t really seen the downturn in commercial real estate yet. It’s more like an anvil than a shoe. What we’ve seen so far hasn’t even really happened – it’s just a minor deterioration in the real estate portfolio. But I think that’s going to be a very serious thing later this year,” the Tesla CEO said in an interview. He later reinforced this assessment on Twitter with the words: “Commercial real estate values are melting away quickly. House values next”.
Commercial real estate is melting down fast. Home values next.
– Elon Musk (@elonmusk) May 29, 2023
However, the reason for Twitter’s lack of rent payments is not likely to be an expected meltdown in prices on the commercial real estate market. Rather, the radical austerity course declared by Musk after his Twitter takeover is probably the reason why Twitter no longer pays rent for its offices. The entrepreneur had previously dismissed numerous employees and shut down parts of the server infrastructure or at least made them available.
Editorial office finanzen.net
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