A new report reveals that some of America’s largest banks are quietly divesting from sectors of the US economy that are in distress. The New York Times reports that banks are selling off commercial real estate loans to “mitigate losses.” For instance, Goldman Sachs and Citigroup have recently sold parts of a $170 million loan secured by office buildings in New York, San Francisco, and Boston.
Moreover, First Capital has sold a $100 million portfolio that includes many loans for New York office buildings. Although the sold loans are negligible compared to the $2.5 trillion in commercial real estate loans held by all US banks, this strategic shift is noteworthy.
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Bitcoin mining company CleanSpark has announced a new deal worth $15.5 billion. The report indicates that these actions reflect some lenders’ reluctant admission that the strategy of “extend and pretend” if failed, could lead to many property owners, especially office owners, defaulting on their mortgages. Consequently, creditors are expected to suffer significant losses, and bank revenues will decline.
“Extend and pretend” was a practice popular during the 2007-2008 global financial crisis, where lenders extended the repayment period of loans, allowing property owners to pretend that the value of their properties had not declined.
With the rise of remote work, the commercial real estate market is in trouble. ATOM data shows that in May alone, there were 625 cases of commercial real estate losing foreclosure rights, a 117% increase year-on-year.
