Fraud in Today’s CRE Market
December 2, 2025
In commercial real estate, fraud is rarely as straightforward as a forged deed. More often, it comes through omissions, optimistic assumptions, or mischaracterized data that make an asset appear stronger than it truly is. In some cases, fraud may not even be intentional.
But in a market defined by inflationary pressure, tighter capital, and tenants demanding more for less, understanding what is real is more critical than ever. In this environment, thorough diligence is the only smart path forward.
Key Takeaways
- Fraud affects buyers, sellers, and lenders – no party is immune.
- Today’s market rewards skepticism and disciplined due diligence.
- Fraud often shows up less as deception and more as unfounded optimism.
The Buyer: Verify Everything
For buyers, fraud risk is highest when they rely too heavily on broker packages, unverified financials, or rosy narratives. Numbers can be manipulated; assumptions can be stretched. A rigorous, detail-driven diligence process is essential.
Physical Condition
Inspect the property thoroughly – building systems, mechanicals, roofs, and common areas. Deferred maintenance can easily hide behind fresh paint or cosmetic upgrades. Walking all units – or at least a statistically meaningful sample – can reveal issues no broker deck will advertise.
Environmental Concerns
Historical use, soil contamination, or groundwater issues can create long-term liabilities. Environmental diligence isn’t optional; it’s protection.
Zoning
Verify zoning compliance and understand any use restrictions or pending municipal changes. Zoning can make – or break – the investment thesis.
Tenant Validation
Confirm leases match the rent roll. Validate income through third-party sources. With modern editing tools, falsified bank statements and fabricated income documentation are more common than most investors realize.
Market Rent & Growth Diligence:
Evaluate whether projected rent increases are actually achievable. In today’s market, tenants – not landlords – hold the leverage, making aggressive rent growth assumptions especially risky.
If something looks too good to be true, it probably is.
The Seller: Beware of Going Too Far with Optimism
Sellers naturally want to highlight the strongest aspects of their property. There is nothing wrong with showcasing upside, emphasizing improvements, or framing the asset in a positive light – as long as the story remains accurate. The line between marketing and misrepresentation can narrow quickly in a competitive or stressful market. Crossing it, even unintentionally, can undermine credibility, delay closings, or result in legal exposure.
Below are some of the most common ways well-intentioned optimism drifts into areas that create real risk for sellers.
Overstated Rent Potential
One of the most common forms of misrepresentation occurs when sellers promote projected rent potential without providing the full context behind current performance. Risky practices include:
- Advertising pro forma rents without disclosing that current leases are far below those targets.
- Presenting gross rent potential but failing to mention large concession packages.
- Omitting chronic delinquency patterns or long-term nonpaying tenants.
- Highlighting “market rents” from nearby properties that do not share the same condition, finishes, amenities, or tenant base.
Buyers and lenders are increasingly skeptical of rent projections, especially in markets where tenants have more leverage. Inflated rent assumptions often fail in underwriting, slowing or killing deals.
Minimized Structural or Mechanical Issues
Positioning a building as a “light value-add” or “cosmetic update” opportunity is common. But portraying deeper issues as surface-level improvements is a form of material omission.
Physical issues, unlike leasing assumptions, cannot be negotiated away – they are real expenses. When these are discovered late in the diligence process, trust erodes and renegotiation becomes inevitable.
Selective Tenant Narratives
Every property has a story, but sellers must tell the whole story- not just the flattering pieces.
Tenant stability is one of the strongest predictors of near-term NOI. Buyers will verify leases, review ledgers, and analyze collections. Discovering inconsistencies later reduces confidence and can lead to retrades or dropped deals.
Inflated or Misleading Market Comps
Market comps are powerful – but only when they reflect true market behavior. When comps are aspirational rather than achieved, the valuation narrative becomes unreliable.
Savvy buyers and lenders know how to vet comps. Inflated comps suggest a lack of transparency, prompting deeper scrutiny or skepticism toward the rest of the materials.
Transparency Protects Sellers
The most overlooked truth: honest disclosures actually strengthen deals.
In a market where everyone is on edge and underwriting is tight, transparency isn’t a moral high ground – it’s a competitive advantage.
The Lender: Look Beneath the Numbers
For lenders, fraud often hides in subtleties – documents that look correct, assumptions that seem reasonable, or borrowers who appear stable.
Misrepresented Financials
Digitally altered bank statements, inflated rent rolls, and manipulated income documentation are easier than ever to produce. Lenders must assume nothing and verify everything.
Unverified Income Streams
A tenant who appears stable on paper may not be in reality. Third-party verification or direct confirmations are no longer best practices – they’re necessities.
Market Conditions
Because renters have more power right now, lenders should pay much closer attention to actual occupancy, leasing velocity, concession trends and real tenant demand
Speed Kills
The market to make “good loans” has been difficult. Lenders (banks & private credit lenders) compete for these “good loans.” Often in an effort to “win” these loans, lenders will cut corners. We do not require as much information. We can close quickly. We are less bureaucratic than other organizations.
Speed often comes at the expense of diligence – and that’s when mistakes are made.
Money Movement
Wire fraud and entity impersonation schemes have surged across the commercial real estate industry, particularly during the final stages of a transaction when large sums of money move quickly and under tight timelines. As closing dates approach, communication intensifies, documents are exchanged rapidly, and urgency increases – all of which create opportunities for sophisticated fraudsters to insert themselves into the process.
The risk is heightened because these attempts often target trusted pathways – email chains, closing binders, or seemingly routine documentation. Even seasoned teams can be fooled when a fraudulent instruction looks identical to the real thing.
Fraud Response
In response to these escalating risks, many organizations are moving beyond simple procedural safeguards and adopting broader, institutional defenses. Fraud awareness is increasingly being built directly into employee performance reviews, recognizing that vigilance is no longer just an IT or finance responsibility – it’s an essential competency across asset management, accounting, lending, and transactional teams.
In parallel, firms are taking steps to protect themselves financially. Specialized insurance policies designed to cover wire fraud, social engineering, and cyber-enabled theft are becoming more common. These policies can provide meaningful protection when human error or sophisticated fraud tactics manage to bypass internal controls. While insurance is not a substitute for rigorous processes, it serves as a critical backstop in a landscape where even well-run organizations can be targeted.
Fraud prevention is not optional – it is a strategic priority, embedded in culture, operations, and financial planning.
Conclusion
In today’s CRE market, the real risk isn’t outright deception – it’s unchecked optimism. With economic pressure mounting and competition tightening, every party in a transaction has an incentive to present the best version of the story. That’s exactly why disciplined diligence matters more than ever.
Buyers, sellers, and lenders who question assumptions, validate data, and challenge the narrative will not only avoid costly mistakes but also uncover opportunities others overlook. In a market defined by uncertainty, skepticism isn’t a defensive posture – it’s a strategic advantage.
About Jack Mullen of Summer Street Advisors:
As Founder & Managing Director of Summer Street Advisors, Jack Mullen leverages decades of experience in valuation, underwriting, and risk management to lead multi-million and multi-billion dollar CRE transactions.
Previously with GE Capital and large institutional banks, he has shaped investment strategies for some of the industry’s largest deals. A recognized leader, his insights are featured in GlobeSt.com and CREFC Finance World, and he is a sought-after speaker at industry conferences and top universities.
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