Some of the largest banks in the United States are quietly divesting from a troubled sector of the US economy, as revealed by a recent report. According to the New York Times, these banks are starting to unload their commercial real estate loans in a move to minimize their losses.

The Times highlights Goldman Sachs and Citigroup, which have recently sold portions of a troubled $1.7 billion loan backed by office buildings in major cities like New York, San Francisco, and Boston. Capital One has also joined in by offloading a $1 billion portfolio that included numerous office loans in New York.

Although the amount of loans being sold by these banks is relatively small compared to the $2.5 trillion in commercial real estate loans held by all US banks, the shift in approach is significant. It signifies a reluctant acknowledgment by some lenders that the banking industry’s strategy of ‘extend and pretend’ is no longer sustainable. Many property owners, especially of office buildings, are expected to default on mortgages, leading to substantial losses for lenders and diminished bank earnings.

The commercial real estate market continues to struggle due to the growing trend of remote work. Nationwide, there were 625 commercial real estate foreclosures recorded in March, marking a 117% increase year-over-year, according to new data from real estate analytics firm ATTOM. California was particularly hard-hit, with 187 foreclosures, a stark 405% rise from March 2023.

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