Goldman Sachs on the CRE & the Banking Sector
Top of Mind
Goldman Sachs released its research note on the commercial real estate market last week. Goldman combined its own research with interviews from Scott Reschler of RXR and Columbia Business School's Stijn Van Nieuwerburgh.
A major focus of the report was how CRE stress may impact the banking sector. Goldman's analysts say banks account for approximately 50% of total CRE debt, and of that 75% is held by small and mid-sized banks. While absolute exposure is low (only 3% of bank loans are CRE related) both Rescher and Nieuwerburgh expect another round of regional bank failures.
Turning to listed REITs, Goldman stresses that fundamentals matter. Industrial and Retail REITs continue to see strong occupancy and rent growth on the backs of resilient consumers, while office remains in a challenging environment. However, the report points out that not all office is created equal. Newer building, defined as those built after 2008, have maintained occupancy much better than older buildings.
Goldman also looked closely at the difference between Private and Public Real Estate performance. While private has outperformed public since 2011, the gap in performance reached an extreme this past year and has begun to close.
"Private marks have recently started to come down, and as risks in private real estate capital persist, we expect returns to normalize closer to public market valuations, in line with weakening fundamentals. As such, the value gap between private and public markets is likely to converge eventually."
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