Elon Musk, Tesla’s (NASDAQ:TSLA) CEO and Twitter’s largest shareholder, discontinued paying the rent on Twitter’s office in November 2022, and has indicated that he does not plan to restart payments or cover its earlier dues. As cited by lawsuits and reported by Financial Times, this has swollen Goldman Sachs’ (NYSE:GS) Q1 commercial real estate (CRE) loan delinquencies. Musk’s refusal to pay rent is leading to suffering on the part of Goldman Sachs.
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Goldman Sachs’ Delinquencies
In comparison to its larger peers, Goldman Sachs has lesser exposure to CRE lending. At Q1’s end, its outstanding loans backed by commercial property stood at $8.4 billion while Wells Fargo had $91 billion, and Bank of America had $60 billion. CRE represents less than 20% of Goldman’s overall loan book.
However, the value of GS’s loans to CRE that are behind on repayments skyrocketed 612% in Q1 to $840 million. As per reports filed by Goldman’s licensed banking entity with the U.S. Federal Deposit Insurance Commission (FDIC), this is significantly higher than the 30% increase reported by the entire U.S. banking industry in the same period, to $12 billion.
Twitter and GS: The Columbia Property Angle
A group of banks including Goldman Sachs, Citigroup, and Deutsche Bank lent $1.7 billion to REIT, Columbia Property against seven office buildings in San Francisco and New York. This included two buildings that accommodate large offices for Twitter. Columbia Property defaulted on the loan in February 2023 and is also suing Twitter for the lapse in rent payments.
Funds managed by Pacific Investment Management Company acquired the REIT, Columbia Property Trust in 2021 for $3.9B. The REIT develops, owns, and operates notable office buildings in New York, San Francisco, Washington, D.C., and Boston.
What is the Future of Goldman Sachs Stock?
Overall, Wall Street is highly optimistic about the Goldman Sachs stock with a consensus Strong Buy rating based on the 12 Top analysts’ coverage, which includes 11 analysts with a Buy rating. The average price target set at $412.75 marks a 22.8% upside potential.
In the past week, Morgan Stanley reaffirmed its Hold rating on the stock. Meanwhile, in the last month, Barclays Analyst Jason Goldberg reaffirmed his Buy rating with a price target of $437, implying a 30% upside potential.
