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Goldman Sachs reassures investors: no financial crisis, don't panic about commercial real estate

Charles Sainsbury
15. 4. 2023
3 min read

The collapse of Silicon Valley and Signature banks last month is likely to have deepened uncertainty in the commercial real estate market, with lenders looking to shrink balance sheets and becoming less willing to lend to property owners. While analysts at Goldman Sachs expect big trouble in the office sector, they believe it is not a widespread problem.

Big names ranging from Bill Ackman and Elon Musk to Bank of America and JPMorgan have predicted that the troubled sector will soon be where the next cracks in the US financial system will show - but Goldman Sachs analysts have questioned that trend.

"The risk of a vicious cycle of large losses and insufficient capital on balance sheets posing a threat to financial stability remains limited," strategists Lotfi Karoui and Vinay Viswanathan said in a report published on Monday.

Goldman Sachs' view contradicts that of analysts such as Bank of America's Michael Hartnett, who said in a report last week that commercial real estate is likely to be "the next sector to fall" as credit standards tighten further."

Hartnett believes that a wave of upcoming refinancing of commercial real estate loans at much higher interest rates than in the past could trigger a credit crunch in the sector, sending stocks into a spiral and the economy into recession.

The collapse of Silicon Valley Bank and Signature last month could also further stoke commercial real estate turmoil - as shaken lenders looking to trim their balance sheets could be less willing to offer financing to property owners.

While Karoui and Viswanathan expect huge problems in the office sector - an area that other strategists have also expressed concern over - they believe apartments, manufacturing plants, warehouses and other types of commercial real estate are better capitalised and will not suffer a huge crash.

"We expect office loan delinquencies to increase significantly, but believe this is unlikely to lead to systemic risk given the healthier fundamentals in other commercial real estate subsectors," Goldman Sachs strategists said.

Turbulence is likely to be limited to office loan delinquencies "given healthier fundamentals in other commercial real estate subsectors such as apartments and industrial properties, as well as in other parts of the credit markets," Karoui and Viswanathan added.

https://twitter.com/NewsLambert/status/1644015280241123340

I've been covering the topic of commercial real estate on Bulios for a few days now, so you can read about it here, for example:

1. Musk, Ackman and Chanos warn: this sector is next in line after the bank collapse | Bulios

2. The credit crisis has begun: But according to statistics, companies are paying the most | Bulios

3. Also worth mentioning is the article by Tomas Cverna, who also discussed it on Bulios: Commercial real estate: another capital market time bomb? | Bulios

Please note that this is not financial advice.


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