A recent report reveals that some of the largest banks in America are quietly divesting themselves of their exposure to a troubled sector of the US economy.
According to the New York Times, these banks are beginning to offload commercial real estate loans in an effort to minimize their losses. The report cites examples such as Goldman Sachs and Citigroup, who have recently sold portions of a troubled $1.7 billion loan backed by office buildings in New York, San Francisco, and Boston. Capital One has also sold off a $1 billion portfolio that included a significant number of office loans in New York.
While the value of the loans being sold is relatively small compared to the $2.5 trillion in commercial real estate loans owned by all US banks, the shift in strategy is significant. It indicates a reluctant acceptance by some lenders that the banking industry’s strategy of ‘extend and pretend’ is no longer viable, and that many property owners, particularly office building owners, are likely to default on mortgages, resulting in substantial losses for lenders and a negative impact on bank earnings.
The commercial real estate market continues to struggle due to the increasing prevalence of remote work. According to new data from real estate data provider ATTOM, there were 625 commercial real estate foreclosures recorded nationwide in March, representing a 117% increase year-over-year. California was particularly hard hit, with 187 foreclosures, representing a 405% surge from March 2023.
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