SEC Director Focuses on CRE Disclosures

As part of a panel discussion at the Practising Law Institute’s 2024 SEC Speaks Conference held on April 2, 2024, the Director of the SEC’s Division of Corporation Finance, Erik Gerding, highlighted several risks and disclosures relating to commercial real estate (CRE) that the Staff has recently focused on and expects to continue to focus on when reviewing periodic filings given the current market distress and uncertainty in the CRE sector.

Noted CRE-related risks included heightened vacancy rates, elevated interest rates, extended loan maturities, and increased loan delinquencies.  While REITs and those investing in REITs are likely already familiar with many of these risks, Director Gerding noted that the SEC Staff was considering, and will continue to consider, how banks disclose disaggregation of loan portfolio characteristics; geographic and other concentrations; loan-to-value ratios; loan modifications; nonaccrual loan policies; policies related to the timing, frequency, and sources of appraisals; and risk management.  The SEC Staff will also consider how office and retail REITs describe default risks or liquidity issues and any mitigating efforts, debt maturity and lease term schedules, trends in lease renewals, major tenant rollovers, financial viability of tenants, property dispositions, asset impairments, and tenant receivables.

The Director encouraged companies to consider other areas of their disclosures where more granular information could be provided in order to improve investors’ understanding of the material risks inherent in a company’s CRE or other loan portfolios and any mitigating steps companies are taking to address those potential or actual risks.  Director Gerding also noted that companies should keep in mind that other types of industries outside of banks and REITs could be impacted by the CRE environment and that companies should continue to reevaluate these disclosures as the interest rate environment changes.  Read Director Gerding’s recently published statement.