Goldman Sees Surge in Commercial Real Estate Delinquencies... Is Musk to Blame for Rent Arrears?

Real Estate Loan Delinquencies Increase 612%
Significant Impact from Twitter Rent Payment Deferral

Global investment bank Goldman Sachs suffered a hit to its earnings as the delinquency rate on U.S. commercial real estate loans surged in the first quarter of this year. A significant factor was Twitter's delay in paying its office rent. The market has expressed mixed views on the increase in Goldman Sachs' loan delinquency rate.

According to a report by the U.S. Federal Deposit Insurance Corporation (FDIC) on the 11th (local time), $840 million (approximately 1.0865 trillion KRW) of Goldman Sachs' total commercial real estate loans were delinquent in the first quarter of this year alone. This represents a 612% increase compared to the previous year. During the same period, the delinquent amount of commercial real estate loans in the U.S. banking industry (12 billion USD) increased by only about 30%.

[Image source=Yonhap News]

The biggest reason for the sharp increase in Goldman Sachs' loan delinquencies is attributed to the rise in delinquencies by Twitter, a social networking service (SNS). It is known that Twitter has delayed a total of approximately $6.8 million (about 880 million KRW) in rent since last year. Columbia Property Trust, a U.S. real estate company, sought to raise $1.9 billion through Goldman Sachs and Citigroup to purchase a total of seven properties, including Twitter's headquarters. However, as tenants delayed rent payments, they declared default on $1.7 billion worth of real estate bonds. In particular, Columbia Property Trust filed a lawsuit after Twitter failed to pay office rent of $136,260 (about 170 million KRW) since November last year.

Market opinions on the increase in Goldman Sachs' delinquencies are divided. First, some analysts argue that the impact is minimal because commercial real estate accounts for a small portion of the total loan portfolio. According to Goldman Sachs' own statistics, commercial real estate loans make up less than 20% of total loans. Christopher Kotofski, a banking analyst at Oppenheimer, a Wall Street investment banking firm, explained, "Considering that Goldman Sachs is relatively less exposed to commercial real estate, the bad loans are unlikely to have a significant impact on Goldman Sachs' earnings."

On the other hand, there are claims that Goldman Sachs' delinquency rate is higher than that of other competitors, and if the current trend continues, it could pose a significant long-term risk. Banking data company Banking Grace Data pointed out that 10% of commercial real estate loans held by Goldman Sachs' subsidiaries are delinquent, whereas competitors' delinquency rates remain below 1%.

Moreover, concerns arise from the fact that Goldman Sachs lends to companies with higher loan recovery risks compared to its competitors. Major foreign media reported that JPMorgan Chase and Citibank lent to commercial real estate borrowers with investment-grade junk ratings at rates of 28% and 17%, respectively, while Goldman Sachs recorded a rate of 65%. The media stated, "Goldman Sachs tends to lend willingly to riskier companies than other banks," adding, "Considering this, the more loans Goldman Sachs extends, the greater the potential loss they may have to bear."