Lease Accounting: What Are You Doing? (2 posts)

Topic tags: Featured
  • Profile picture of Deleted User said 5 years, 6 months ago:

    The proposed lease accounting will have material affect on the Commercial Real Estate Industry including:

    1. Early Renewals – Tenants will be more inclined to exercise lease renewal options earlier, so that they are better able to forecast their balance sheets in future years so that they can make appropriate business decisions.

    2. Migration to triple net (NNN) leases – The beautiful thing about a triple net lease is that it is clear and straightforward. This is exactly why you will see more of them in the future once the new FASB rules take effect. Tenants will want to know what their up front, overall costs are.

    3. Elimination of percentage rent – Since this percentage rent is not very static, it is hard to account for, which is why you will see it go out the window in negotiations.

    4. Shorter terms – There may be more of an advantage in certain situations to buy, rather than own a property, you will likely see tenants demanding shorter terms on their leases, rather than being locked into a long term lease that has implications for the balance sheet for many many years.

    5. More purchase options – It may be more advantageous for tenants to buy a property rather than lease it long term,since the benefit of not having a lease on the balance sheet will soon be going away.

    6. Carveouts/Isolation of Tenant Improvements – You will begin to see TI dollars not factored into the rent by landlords, since tenants will now have to account for that on the balance sheet. Instead, tenants will demand that TI dollars be completely separate from their base rental figures.

    What other changes do you expect to see as a result of the new lease accounting and what strategies are your organization implementing to address them?

  • Profile picture of Patrick Connors Patrick Connors1p said 5 years ago:

    Check out the Lease Update just posted by Brandon Maeves, with McGladrey’s update on the project! It’s also in the Library section of the website.