Investment bank Goldman Sachs expects sell downs of its balance sheet commercial real estate holdings to continue in 2024, after actively making dispositions over the past couple of quarters.
With the on-balance sheet alternative investments in its asset and wealth management division, Goldman had $8.4 billion in total commercial real estate exposure, including $1.8 billion in loans, $500 million in debt securities, $3.8 billion in equity securities and $2.3 billion in consolidated investment entities, according to the company’s full year and Q4 2023 earnings results presentation.
This represented a further reduction of the firm’s commercial real estate exposure from $9.7 billion, as reported in the company’s Q3 2023 earnings results. All told, the value of Goldman’s commercial real estate alternative investments has fallen by more than $6 billion from $15 billion at the start of 2023.
“We’ve made substantial progress moving down the positions over the course of 2023,” said chief financial officer Denis Coleman during the banking giant’s Q4 2023 earnings call last week. “Our office exposures from an impairment and marks perspective, we’re sitting at roughly 50 percent. So we think that based on the visibility that we had and the activity that we had over the course of 2023, that portfolio, and the broader portfolio for that matter, sits at the right place.”
He continued: “As we move into 2024, there should be opportunities for further dispositions and we’ll remain very focused on what the mix of that disposition activity is.”
In its AWM division, Goldman reported its private equity investments dropped from $2.08 billion in 2022 to approximately $360 million in 2023, attributing the decline primarily to net losses from real estate investments last year. Despite a challenging environment for real estate investments in 2023, debt investments rose to $1.32 billion last year, up 13 percent from 2022.
During Q4 2023, Goldman had $25 billion, or 13.8 percent, of firmwide loans in commercial real estate, net of allowance of loan and lease losses. Of that amount, $11 billion was in warehouse (the largest sector allocation in the loan portfolio) and $1 billion was in office (the smallest sector exposure in the portfolio), the presentation showed.
Forty-six percent of the firmwide commercial real estate loan portfolio was investment-grade, while the office-related loans were primarily secured by Class A office properties, according to the earnings results. Additionally, the firm has $3.4 billion of commercial real estate-related unfunded lending commitments, including $500 million of office-related commitments.
Thirty-eight percent of Goldman’s commercial real estate-related on-balance sheet alternative investments consisted of historical principal investments, which the firm intends to exit over the medium term. The bank’s historical principal investment portfolio accounted for roughly $16 billion of its approximately $46 billion of on-balance sheet alternative investments in Q4 2023. During the quarter, the firm reduced the latter portfolio by more than $4 billion, including $3 billion of CIE sales, bringing total reductions for 2023 to $13 billion.
“We continue to focus on exiting this portfolio over the medium term, though we don’t expect portfolio reductions in 2024 to be at the same pace as in 2023,” Coleman said.
At Q4 2023, Goldman had $21 billion of assets under supervision in real estate, less than 10 percent of the $277 billion in total alternative investments AUS, according to its earnings results. AUS includes assets under management and other client assets for which Goldman Sachs does not have full discretion.
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