4 Critical Risk Areas CRE Lenders and Investors Overlook: White Paper

With commercial real estate facing an estimated $2 trillion in maturing loans over the next three years, lenders and asset managers need to monitor rising risk in their portfolios. A wide variety of red flags can begin to wave before a default occurs, but they are often missed, because they fall outside an asset manager’s typical scope of work. Unless asset managers have expertise in forensic accounting and specialization in distressed CRE assets, risks can go undiscovered and negatively impact loan value. 

SitusAMC explores the best ways to identify and manage these risks in a new white paper, “What Looms Beneath the Surface: How Forensic Diligence Builds on CRE Asset Management to Uncover & Mitigate Deeply Hidden Risk.” 

“Financial institutions are not in the business of owning properties, so an accounting and investigative mindset is required in distressed situations,” said Sandra Adam, CPA, SitusAMC Director, Financial Diligence and Forensic Analysis. “Forensic diligence helps everyone understand what’s happening under the property’s financial ‘hood,’ so lenders can better manage the risks of distressed assets, set the table for a potential workout conversation and minimize financial risk when the lender decides that taking back the property is the only option.”   

In addition, with exposure to a variety of situations across the industry, third-party forensic accountants will be faster to spot issues than an internal team might. They can also bring best practices in terms of infrastructure, and policies and procedures to monitor distressed assets and reduce risk.  

The paper highlights four risk areas that often go overlooked, including financial inconsistencies in the balance sheet; misappropriation of cash; guarantor financial instability; and NOI inflation. The paper outlines steps to understand and identify deeply buried risk factors through forensic diligence, and how to mitigate those risks. Download the White Paper here.   

SitusAMC's Financial Diligence & Forensics Analysis provides CPA-led forensic diligence to proactively identify and mitigate risk in large, complex loans and portfolios. The team works hand-in-hand with participants across the debt and equity spectrum, including CRE operators, banks, management companies, special servicers and law firms, to conduct comprehensive analysis to uncover hard-to-find risk factors. Learn more here or contact Sandra Adam at sandraadam@situsamc.com.