Wednesday, December 28, 2011
Tuesday, December 27, 2011
Friday, December 16, 2011
Jobs, Jobs & More Jobs!!!!!!
Within the last month, I attended two economic forecast conferences that were held about two weeks apart. Both of these conferences
discussed the all important topic of jobs and the economic recovery. The first conference presented a state by state projection of when various states would recover jobs lost since 2005. The presenter expected Georgia to be
back to 2005 levels by 2016 or 2017. At the second forecast, two weeks later, the forecast stretched out the recovery of jobs in Georgia to 2020. Based on this economic model, if you attend a forecast in early 2012, the full recovery of jobs may be pushed out to 2030!
The positive news for the local economy is that we are not Nevada, Michigan or Rhode Island where the recovery of jobs is expected to take place somewhere past 2020.
discussed the all important topic of jobs and the economic recovery. The first conference presented a state by state projection of when various states would recover jobs lost since 2005. The presenter expected Georgia to be
back to 2005 levels by 2016 or 2017. At the second forecast, two weeks later, the forecast stretched out the recovery of jobs in Georgia to 2020. Based on this economic model, if you attend a forecast in early 2012, the full recovery of jobs may be pushed out to 2030!
The positive news for the local economy is that we are not Nevada, Michigan or Rhode Island where the recovery of jobs is expected to take place somewhere past 2020.
Thursday, November 3, 2011
Tuesday, November 1, 2011
Wednesday, September 21, 2011
Monday, August 15, 2011
Monday, August 1, 2011
Saturday, July 23, 2011
Will the new FASB Rules Hurt the CRE Recovery?
The Facts on FASB
A conversation with Marc Betesh.
June 2011 | By Mariwyn Evans
Proposed changes by the Financial Accounting Standards Board to lease accounting rules could make record-keeping a lot more complicated and lease negotiation more difficult, says Marc Betesh, president of KBA Lease Services and Visual Lease in Woodbridge, N.J.
What are the changes that the Financial Accounting Standards Board (the private-sector group that sets rules and reporting standards for accountants) is proposing for leases?
The fundamental change under FAS Topic 840 is that all off–balance sheet transactions involving operating leases, which includes most real estate leases, will be eliminated. Currently, companies don’t show operating leases for real estate on their financial statements, except in footnotes.
How will companies account for their leases if the new rules are adopted?
Leases will appear on a company’s financial statement as though the company had purchased and financed the leased asset. The lease will be shown as a "right-of-use asset" with a corresponding liability for the rent payments and any direct costs like brokerage commissions. The actual figure used will be the net present value of the rent calculated at the interest rate it would cost the company to borrow money. The liability appears the same way, although direct costs are excluded. As the company makes rent payments, each payment is recorded as a payment of principal (a portion of the NPV of the asset) and interest. This amortization requirement could mean that a disproportionate amount of the rental liabilities will shift to the first years of a lease.
Why are the changes eliciting such controversy?
There is a lot of debate on two points—operating expenses and lease options. The right-of-use asset is supposed to cover only the pure use of the space, not the cost to service it. So companies will have to separate out service costs like common-area maintenance charges, taxes, and insurance from the right to use the space. Stripping out these costs will be easy with a pure triple-net lease since the tenant pays all those costs separately. It’s more muddled with a modified gross lease since the landlord pays these costs for the first, or base, year of the lease.
What is the issue with lease options?
Under the new rules, tenants will have to consider how likely they are to exercise lease options from the first day they sign a lease. If they are likely to extend a lease, they have to include the option term and the option rent in their calculations. Making the option decision so early is very subjective and seems to undermine the purpose of the rule change, which is to provide more transparency and reliability in financial statements.
To make things even more complicated, the tenant also has to re-evaluate these probabilities on a regular basis and recalculate the amortization to reflect any changes.
How could these changes affect the overall leasing climate?
Under the new proposal, tenants may prefer shorter leases, which will be problematic for landlords that need longer leases to secure financing or sell a property at a higher price.
When will the proposals be finalized?
It seems likely that the proposals will be enacted sometime this year and go into effect a year or more later.
Related Content:
Leasing Dos and Don'ts To Help You Fill Your Space
Get Your Bonus for Leasehold Improvements
Focus On: Corporate Leases
Getting a Commercial Loan: What Borrowers Need to Know
4 Commercial Investor Tips
March 2011: Commercial News Round Up
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Mariwyn Evans
A conversation with Marc Betesh.
June 2011 | By Mariwyn Evans
Proposed changes by the Financial Accounting Standards Board to lease accounting rules could make record-keeping a lot more complicated and lease negotiation more difficult, says Marc Betesh, president of KBA Lease Services and Visual Lease in Woodbridge, N.J.
What are the changes that the Financial Accounting Standards Board (the private-sector group that sets rules and reporting standards for accountants) is proposing for leases?
The fundamental change under FAS Topic 840 is that all off–balance sheet transactions involving operating leases, which includes most real estate leases, will be eliminated. Currently, companies don’t show operating leases for real estate on their financial statements, except in footnotes.
How will companies account for their leases if the new rules are adopted?
Leases will appear on a company’s financial statement as though the company had purchased and financed the leased asset. The lease will be shown as a "right-of-use asset" with a corresponding liability for the rent payments and any direct costs like brokerage commissions. The actual figure used will be the net present value of the rent calculated at the interest rate it would cost the company to borrow money. The liability appears the same way, although direct costs are excluded. As the company makes rent payments, each payment is recorded as a payment of principal (a portion of the NPV of the asset) and interest. This amortization requirement could mean that a disproportionate amount of the rental liabilities will shift to the first years of a lease.
Why are the changes eliciting such controversy?
There is a lot of debate on two points—operating expenses and lease options. The right-of-use asset is supposed to cover only the pure use of the space, not the cost to service it. So companies will have to separate out service costs like common-area maintenance charges, taxes, and insurance from the right to use the space. Stripping out these costs will be easy with a pure triple-net lease since the tenant pays all those costs separately. It’s more muddled with a modified gross lease since the landlord pays these costs for the first, or base, year of the lease.
What is the issue with lease options?
Under the new rules, tenants will have to consider how likely they are to exercise lease options from the first day they sign a lease. If they are likely to extend a lease, they have to include the option term and the option rent in their calculations. Making the option decision so early is very subjective and seems to undermine the purpose of the rule change, which is to provide more transparency and reliability in financial statements.
To make things even more complicated, the tenant also has to re-evaluate these probabilities on a regular basis and recalculate the amortization to reflect any changes.
How could these changes affect the overall leasing climate?
Under the new proposal, tenants may prefer shorter leases, which will be problematic for landlords that need longer leases to secure financing or sell a property at a higher price.
When will the proposals be finalized?
It seems likely that the proposals will be enacted sometime this year and go into effect a year or more later.
Related Content:
Leasing Dos and Don'ts To Help You Fill Your Space
Get Your Bonus for Leasehold Improvements
Focus On: Corporate Leases
Getting a Commercial Loan: What Borrowers Need to Know
4 Commercial Investor Tips
March 2011: Commercial News Round Up
Average:
0
.
No votes yet
Your rating:
Give it 1/5
Give it 2/5
Give it 3/5
Give it 4/5
Give it 5/5.
Your rating: None
.
»
Mariwyn Evans
Tuesday, June 7, 2011
Wednesday, May 11, 2011
Thursday, March 17, 2011
Monday, February 28, 2011
Monday, February 7, 2011
Friday, January 28, 2011
FASB Reverses Course on Mark-to-Market Rule
FASB Reverses Course on Mark-to-Market Rule: "NAR and its coalition partners successfully lobbied to change a proposed accounting rule that could have dramatically reduced the availability of capital for commercial real estate. br /"
Friday, January 21, 2011
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