Fearing Losses, Banks Quietly Dumping Commercial Real Estate Loans
As reported by The New York Times
Why it matters: This signals growing distress in the commercial real estate market, hit by high interest rates and low occupancy rates post-pandemic.
The big picture: Wall Street banks are selling off portfolios of commercial real estate loans, anticipating that landlords of vacant office buildings won't be able to repay their mortgages.
Recent moves:
- Deutsche Bank: Late last year, an affiliate of Deutsche Bank and another German lender sold the delinquent mortgage on the Argonaut, a 115-year-old office complex in Midtown Manhattan, to the family office of billionaire investor George Soros, according to court filings.
- Goldman Sachs: Around the same time, Goldman Sachs sold loans it held on a portfolio of troubled office buildings in New York, San Francisco, and Boston.
- CIBC: In May, the Canadian lender completed a sale of $300 million of mortgages on a collection of office buildings across the country.
Zoom out: Banks hold around $2.5 trillion in commercial real estate loans, but only a fraction are being sold off. This reflects a shift from the “extend and pretend” strategy, where banks extended loan terms hoping landlords would stabilize their finances.
Between the lines: Banks prefer to sell loans privately to avoid alarming shareholders and face pressure from regulators and investors to reduce their exposure to commercial real estate.
Expert insight: Sales of these loans are not yet widespread, but banks are testing the market for potential buyers.
- Quote: "The banks know they have too many loans on their books," says Jay Neveloff of Kramer Levin.
Looking ahead: Hundreds of billions in office building loans are due in the next two years. Banks aim to minimize losses by selling loans now, rather than risking bigger hits later.
Bottom line: The situation is not yet at crisis levels, but banks are taking preemptive steps to manage risk as the commercial real estate market faces significant challenges.
