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Falling real estate values are hitting Goldman Sachs’ bottom line, the banking giant revealed in its second-quarter earnings report Wednesday.
The report pointed to the commercial real estate sector as a key contributor to the declining performance of its debt and equity investments, Bloomberg first reported.
Goldman reported a $485M impairment due to write-downs of its real estate investments, it said in its second-quarter earnings report filed with the Securities and Exchange Commission.
This contributed to Goldman reporting a net loss of $403M from its equity investments last quarter, and the company's overall second-quarter profit fell 58% year-over-year to $1.2B.
“The increase in net losses in Equity investments primarily reflected net losses from real estate investments compared with net gains in the prior year period,” the earnings report said.
In its debt investments, the banking giant reported a $197M gain, down from $408M during the first quarter. The report attributed the drop in debt revenue to “net mark-downs in real estate investments.”
Goldman’s Q2 filing didn’t say exactly which properties specifically played a role in either the equity or debt revenue declines.
One of Goldman's real estate funds, US Real Estate Opportunities I LP, owns an 89% stake in a seven-building, 2.1M SF office portfolio in Rosslyn, Virginia, that went into default last month, as Bisnow first reported. Along with partner Monday Properties, the Goldman fund held $841M in CMBS debt on the portfolio that matured in June, and the loans were transferred to special servicing after it was unable to secure refinancing, according to Morningstar.
Morningstar Head of Commercial Real Estate Analytics David Putro said in an email Tuesday that he can't opine on Goldman's overall write-downs, but the circumstances of the Rosslyn portfolio "would be enough to push down value."
Office properties backed by CMBS loans are going into default at record levels. In May, the delinquent rate for these types of properties spiked 128 basis points to 4.2% — surpassing 4% for the first time since 2018, according to Trepp. Last month saw a slight increase to 4.5% delinquency.
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