What CPAs Hear Behind Closed Doors: CRE Concerns from Landlords and Tenants

Commercial property owners and tenants are under pressure from rising costs, compressed cap rates, unpredictable lease negotiations, and tax positions that require careful navigation. While most of the public dialogue focuses on interest rates or vacancy rates, the real friction surfaces in private conversations with CPAs—where financial reality collides with real estate strategy. These closed-door discussions often reveal what’s keeping landlords and tenants up at night. And more importantly, they highlight where many are making costly mistakes.

Lease Structures Aren’t Matching Capital Planning

CPAs are seeing repeated misalignment between lease structures and long-term capital planning. Landlords are committing to leases with escalators that don't match the pace of inflation or anticipated capital improvements. This creates a disconnect when it's time to reinvest in a property—particularly with older assets requiring HVAC replacements, ADA upgrades, or fire suppression retrofits.

From the tenant side, leases that front-load tenant improvement allowances can make tax planning unpredictable. Tenants assume they can capitalize on large allowances, but the IRS sees it differently if ownership changes hands or if those allowances are paid upfront without matching lease amortization. CPAs are warning tenants not to assume TI dollars are a free ride—they’re often taxable income depending on timing and structure.

Unrealistic NOI Projections Are Creating Appraisal and Lending Gaps

Landlords are inflating projected net operating income (NOI) to hold property values steady on paper, particularly in secondary and tertiary suburban markets. CPAs are constantly recalculating books when actuals fall short of underwriting projections used in loan renewals or appraisals. This discrepancy is setting up properties for valuation shortfalls when they hit refinancing deadlines, especially as cap rates continue to widen for non-core assets.

The most common culprit? Aggressive lease-up timelines and overestimated market rents. Accountants are urging property owners to keep pro forma numbers realistic—not just for investors, but because the IRS is cracking down on deferred maintenance and depreciation strategies that rely on overly optimistic future income. Some clients are facing audit flags after reporting increases in property value without enough backing from actual cash flow.

The 1031 Exchange Is Becoming a Trap, Not a Solution

Landlords and tenants with shared ownership interests or pass-through entities are bringing more nuanced questions about 1031 exchanges than ever before. The core issue isn’t just deferring taxes—it’s that the replacement property doesn’t align with long-term investment strategy.

CPAs are advising clients to stop treating 1031s as a get-out-of-jail card for taxes. The identification window and debt replacement rules are catching many investors off guard, especially when asset values have dropped and available properties don’t pencil. And the pressure to reinvest often leads to hasty acquisitions in weaker markets just to meet IRS deadlines.

What’s getting whispered behind the scenes is the number of investors holding off on 1031s entirely, willing to eat the capital gains taxes in exchange for portfolio flexibility. Tax planning isn’t always about deferral. Sometimes it’s about strategic liquidation—especially for aging landlords looking to reduce exposure in unstable retail or suburban office sectors.

CAM Reconciliation Is Breaking Trust Between Tenants and Landlords

Operating expenses are now one of the most disputed items between landlords and tenants, and CPAs are often dragged in as unofficial referees. Common area maintenance (CAM) reconciliations are revealing cost pass-throughs that tenants view as padded or poorly documented. The breakdown often comes from a lack of standardized reporting—not necessarily overbilling, but ambiguous categories like administrative fees, security charges, or shared utility estimates.

CPAs are advising landlords to modernize their CAM accounting. Tenants, especially multi-location retail operators, are pushing back hard against vague annual reconciliations and are bringing their own accountants to the table during renewals. This is pushing landlords to adopt third-party CAM auditing tools and to provide clean, timely statements that match lease terms exactly.

Tenants are also scrutinizing capital expenditures disguised as operating costs. CPAs are flagging when landlords cross the line by shifting roof replacements, major resurfacing, or mechanical upgrades into CAM pools without proper amortization schedules. This creates potential legal exposure for landlords—especially when dealing with national tenants that have legal teams trained to catch those errors.

Real Estate Partnerships Are Collapsing Over Depreciation Recapture

More real estate partnerships are dissolving, and it’s not just market pressure—it’s disagreements over depreciation recapture. In many closed-door conversations, CPAs are mediating disputes among partners who assumed equal tax treatment only to find out one partner has to recognize significantly more income on exit than the others.

This is happening frequently with multi-asset partnerships or properties held through tiered LLCs. When one partner exits early or the property is sold after a cost segregation study, the tax burden isn’t split equally. Sophisticated investors are structuring around this with special allocations and built-in gain tracking, but many suburban syndications never planned for that.

CPAs are now advising clients to revisit their operating agreements. Some are even recommending splitting LLCs per property rather than holding a dozen assets under one umbrella—just to avoid messy unwindings when one asset sells or refinances.

Tenants Are Misreporting Lease Incentives and Paying for It Later

Tenant CPAs are having to clean up after deals are inked without tax planning. Lease incentives—especially cash allowances and rent abatements—are often misunderstood or misreported. When these are not properly matched with occupancy dates or when tenants fail to recognize them correctly on financials, it can result in retroactive tax bills and audit exposure.

A common issue arises when a tenant receives free rent but starts recognizing full rent expense immediately without adjusting for the free period amortization. IRS auditors are catching this misstep, especially when free rent spans fiscal year boundaries. Accountants are recommending that tenant financial officers insist on clear documentation around lease incentives and match revenue recognition to lease milestones, not just contract terms.

Exit Strategy Gaps Are Surfacing During Succession Planning

Privately-held CRE portfolios are running into trouble when ownership is passed to heirs or restructured during estate planning. CPAs are seeing more properties transferred without updated valuations, resulting in inaccurate basis tracking. This leads to overpayment of taxes—or worse, missed opportunities to step up basis and reduce exposure.

Many landlords have outdated cost bases on properties held for 30+ years. Without current appraisals or depreciation recapture plans, successors inherit a tax liability they weren’t prepared for. CPAs are now urging clients to get ahead of this. Asset-specific planning, including periodic valuations and refreshed entity documents, is the only way to ensure a clean transfer. The push is toward more precise estate models, not vague trust documents that fail under scrutiny.

Final Thoughts

CPAs working with commercial real estate clients don’t just crunch numbers—they deal with strategic breakdowns caused by poor documentation, weak structuring, and mismatched financial goals. The conversations happening behind closed doors are where those issues surface, and they carry real consequences. Whether it’s a 1031 gone sideways, a lease incentive misreported, or a CAM dispute boiling over, the recurring theme is this: financial discipline must match investment ambition. And in today’s market, there’s no margin for avoidable errors.