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Auditing Spotlight on Commercial Real Estate Holdings

See what companies with CRE exposures should be prepared to discuss with auditors.
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While the U.S. economy continues to outperform global peers, concerns linger about the impact of higher-for-longer interest rates and the ongoing elevated vacancy rates in the U.S. commercial real estate (CRE) market. Here’s a list of what companies with CRE exposures (owners, lenders, lessors, mortgage servicers, and property managers) should be prepared to discuss at their next auditor visit.

On May 6, 2024, the PCAOB, the regulatory oversight group for public company accounting firms, issued special audit considerations for the CRE market. The Federal Reserve’s April 2024 Financial Stability Report carries forward valuations as one of the top four vulnerabilities to the financial system.

“CRE market conditions continued to deteriorate, especially for the office sector, and prices continued to decline against a backdrop of high vacancy rates and weakening rents.”1

The PCAOB report notes the following challenges in the current CRE environment that impact both public and private companies:

  • Defaults on commercial mortgages that could impact originators, mortgage servicers, securities purchasers, and providers of risk mitigation products.
  • Unusually competitive rental rates and/or lease incentives.
  • Declining property values.
  • A substantial volume of office property loans reaching maturity, without a market to refinance such loans.
  • The risk that the impact of these CRE market conditions may also spread to nearby retail space.
  • Reduced desirability of living, socializing, and working in densely populated urban mixed-use centers, which may have long-term effects on such CRE.

The PCAOB spotlight report contains a list of questions that your auditor may be asking in the coming year related to CRE activity:

  1. How have interest rates affected the ability of the borrower to make repayment?
  2. Would lower occupancy rates affect the ability of the borrower to make repayment?
  3. Does the property depend on a limited number of tenants?
  4. Are significant tenants experiencing financial difficulties or deciding not to renew their leases, or deciding to reduce the square footage they are leasing?
  5. How have interest rates affected the mortgaged property’s value?
  6. Would lower occupancy rates affect the mortgaged property’s value?
  7. Do advances in technology, such as ecommerce and self-service, impact the property’s value or desirability to lessees and, as such, the marketability of the commercial space as currently configured? Can the property be economically reconfigured for other purposes?
  8. Will evolving real estate needs and lessee preferences affect lease renewals?
  9. Are significant portions of the property’s tenants reaching lease maturity? If so, what are the prospects for renewals or new tenants?
  10. Have there been significant lease terminations?
  11. Have assumptions regarding lease renewals changed?
  12. Have current conditions decreased the value of collateral?
  13. Are borrowers either not meeting, or at risk of not meeting, covenant requirements?
  14. Are borrowers able to refinance without a significant capital investment?
  15. Have collectability issues concerning lease payments increased?
  16. Is a lender’s allowance for credit losses still reasonable given changes in the market?
  17. Has CRE distress in the borrower’s market resulted in tightened credit availability?
  18. Could the lender’s exposure to CRE result in liquidity issues and a reduction in CRE lending and/or refinancing should the CRE slowdown persist or worsen?
  19. Is the ability of the public company to continue as a going concern at risk?
  20. How have pricing and trading volume of commercial mortgage-backed securities (CMBS) affected investments held by the public company?
  21. How have defaults on underlying mortgages impacted CMBS investments?
  22. If the public company is a real estate investment trust (REIT), do conditions subject the public company to any tax-related risks or impair its ability to preserve its qualification as a REIT?


The assurance team at Forvis Mazars has extensive experience and skilled professionals to assist with your objectives. Our proactive approach includes candid and open communication to help address your financial reporting needs. At the end of the day, we know how important it is for you to be able to trust the numbers; our commitment to independence and objectivity helps provide the security and confidence you desire. Whether you are publicly traded or privately held, Forvis Mazars can help provide an independent and objective view into your financial reporting. We leverage some of the latest technologies and process automation tools to provide companies assurance on their financial statements to help meet stakeholders’ needs. For more information, visit


Anne Coughlan

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