Term Sheet: Goldman details real estate portfolio reductions; Citi, Deutsche Bank CMBS continues hospitality lending wave; Bain and Smith Hill launch $1bn debt joint venture

Goldman Sachs reduces the value of its balance sheet real estate portfolio by one-third to reduce sector exposure risk; Citibank and Deutsche Bank originate a $410 million refinancing package for a pair of Four Seasons resorts in Florida. Plus: Bain Capital’s special situations unit and Smith Hill to start targeting debt and preferred equity opportunities via a joint venture; and more in today’s Term Sheet, exclusively for our valued subscribers.

They said it

“When there’s high uncertainty, people need capital in a hurry” 

Stephen Schwarzman, chairman, co-founder and chief executive at New York-based mega-manager Blackstone, describing on the firm’s third quarter earnings call how managers willing to take a longer-term view on asset values can step up to make attractive investments today

What’s new

Ups and write-downs: Goldman Sachs this week outlined how it is scaling back its commercial real estate exposure (Source: Getty)

Clear metrics

Goldman Sachs this week provided clear metrics around the value of its commercial real estate portfolio on its third quarter earnings call, with the New York-based firm also detailing the way it has worked to reduce exposure to the sector. The firm scaled back the value of what was a $15 billion portfolio by about $5 billion this year, said Denis Coleman, chief financial officer. “Three-quarters of that was either through paydowns or dispositions, the balance through marks and impairments,” he said. “So, we’re making very, very significant progress against those exposures.”

The call provided additional insight on the divergence between office and non-office assets as Goldman reported it has either marked or impaired its office sector-related commercial real estate and consolidated investment entity exposure down by about 50 percent this year. For non-office commercial real estate and consolidated investment entity exposures, the impairment is about 15 percent year-to-date.

Resort hopping

Despite broad lending market volatility, high-quality hospitality assets have continued to attract new financing from bank and private credit lenders. New York-based Citibank and Deutsche Bank joined the wave this week by launching a $410 million CMBS deal to refinance a pair of Four Seasons resorts in Florida.

The deal, initially highlighted in a pre-sale filing by Chicago-based data provider Morningstar DBRS, arrived a week after Honolulu-based manager Trinity Investments finalized a similarly themed $750 million refinancing for a pair of luxury Florida resorts. Citi and Deutsche Bank’s four-year, interest-only loan for Fort Lauderdale, Florida-based Fort Partners will be used to repay $345 million of existing debt on the Four Seasons resorts in Surfside and Palm Beach, Florida. The $56.5 million remaining balance left after $8.5 million in closing costs will allocated toward reserves.

Distress dollars

Miami-based manager Highline Real Estate Capital this week outlined plans to raise a $350 million fund to target distressed commercial real estate opportunities in the Southeast US. The Highline Real Estate Fund 1 will be used to originate debt and supply equity to owners that may be having difficulty selling or financing properties across any major asset class. The firm has designated $175 million of the fund to be used for debt financing, $100 million for joint ventures and $75 million for discretionary capital commitments.

Highline’s move tracks similar efforts from private credit and equity managers that have been looking to capitalize on real estate market dislocation and lender scarcity. Mid- to smaller-sized private credit firms have been especially active in offering financing lifelines through similar funds launched this year.


Another one bites the debt

Boston-based manager Bain Capital Special Situations and Cranston, Rhode Island-based manager Smith Hill Capital, an affiliate of Procaccianti Group, this week became the latest managers to form a partnership to originate commercial real estate debt and preferred equity investments. The partners initially will target loans and refinancings in the hospitality sector, seeking opportunities in primary and second US markets. The proposed $1 billion venture could also acquire debt or provide rescue capital.

David DesPrez, a managing director at Bain, said the partners were motivated by rising interest rates and a lender pullback. “[This] has created a significant opportunity to deliver flexible financing solutions to high-performing, growth-oriented hospitality borrowers,” he said. Bain and Smith Hill are not the first managers to join this effort – read additional coverage from Real Estate Capital USA here.

Charging off-ice

Banks increased their commercial real estate loan charge-offs in the second quarter, with a particular uptick around office loans, according to a report released this week by New York-based data provider Trepp. Charge-offs occur when a bank has determined a particular loan is showing signs of distress and will then absorb expected future losses on its balance sheet.

The net charge-off amount for the office sector tripled from $149 million in Q1 2023 to $459 million in Q2 2023, with the lodging, retail, and multifamily sectors also seeing increases in charge-off amounts in recent quarters, Trepp noted. While substantial charge-offs in the office sector are not unexpected, it is another signal of banks feeling additional stress in their commercial real estate loan portfolios compared with prior quarters.

Data snapshot

Unintended consequence

Significantly higher borrowing costs for mid-market commercial real estate managers over the past year is having a broad impact on their ability to finance new projects or sometimes even perform everyday functions, like making payroll, according to a report published this week by Chicago-based advisory firm RSM US. This situation is expected to be exacerbated as lower-cost debt expires and borrowers have to take on new, higher-cost financing.


Thorofare expands senior management team

Los Angeles-based commercial real estate lender Thorofare Capital this week brought on a trio of senior executives. The firm, an affiliate of Boston-based Callodine Group, hired Robert Worthington as head of investor relations, Renat Yusufov as director of asset management, and Brett Tomich to be managing director of investor relations.

Tomich is based out of Los Angeles, while Worthington and Yusufov are based in Charlotte, North Carolina and Coral Gables, Florida, respectively. The hires expand the firm’s team at a time when Thorofare Capital sees substantial investment opportunities and a chance to grow market share, said Kevin Miller, chief executive.

Loan in focus

B-ranching out: Driftwood originates loan for the Scottsdale Resort at McCormick Ranch, Arizona. (Source: Driftwood Capital)

Market oasis

Driftwood Capital, a Coral Gables, Florida-based commercial real estate debt and equity manager, last week lined up a $115 million loan from MetLife Investment Management, which it will use to refinance debt on the Scottsdale Resort at McCormick Ranch in Scottsdale, Arizona. Carlos Rodriguez Senior, Driftwood’s chairman and chief executive, said the firm is planning a $40 million renovation campaign to tap into rising demand in Scottsdale. High-end hotels in Scottsdale have seen revenue per available room rise 25 percent on 2019 levels. Bigger picture, the loan demonstrates strong lender interest in high-quality hospitality properties, which has been seen in a slew of major financings and refinancings over the past few weeks.

Today’s Term Sheet was prepared by Randy Plavajka with Samantha Rowan, Evelyn Lee and Shihao Feng contributing