Thursday, November 3, 2011

Lessors & Landlords To Be Excluded From FASB Revisions?

There is potential good news for Lessors, Landlords and affected CRE property owners with respect to the extraordinary revisions of a joint undertaking by Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IFRS).

Specifically, there has been significant concern -- and I have covered it extensively in these pages -- that lease accounting would be updated in the name of improved transparency.

The good news is this: There has been significant public comment on the draft published in August 2010. The potential impact for CRE has been huge, for landlords and tenants, property managers and commercial brokerages. More succinctly, because real estate leases comprise a high percentate of all operating leases, that impact could be significant.

A tip of the hat to my colleague Barbi Reuter at PICOR/Cushman & Wakefield, FASB now has agreed to reconsider its proposed guidance. Lease figure accounting under the original proposal was to be moved from the operating statement to the balance sheet. Now, final guidance is coming in 2012 due to the volume of public input. 

More importantly, FASB published the following on their public website: The two bodies "have tentatively decided that a lessor's lease of investment property would not be within the scope of the receivable and residual approach. Insteads, for such leases the lesor should continue to recognize the underlying asset and recognize lease income over the lease term."

The International Council of Shopping Centers (ICSC), which has been lobbying heavily on this subject, summarized it as follows: "The Boards' decision to exclude all lessors of all investment properties from the receivable and residual approach gives many real estate lessors the opportunity to continue to use operating lease accounting rules. Given their decision that lessors should apply operating lease accounting to leases of investment properties, the Boards will likely receive requests to reconsider previous decisions on lessee accounting, such as requiring a single income statement recognition model for all leases, including leases of real estate."

Stay tuned. This will continue to be hot news for CRE investors, tenants and practitioners.

Again, h/t to Barbi Reuter at PICOR in Arizona.

Wednesday, November 2, 2011

Not Your Average Condo

Readers of CoC have long heard (read?) me rail about your domicile not being an investment.

Specifically, I subscribe to the Robert Kiyosaki philosophy -- the house in which you live is not an investment unless you are charging your children rent for their rooms. A house may be the biggest purchase you will ever make, or your largest asset, but it is NOT nor should it ever be construed as an investment.

But there is a condo complex in southwest Ohio/eastern Indiana that . . . well . . . might be viewed as an investment. I'm not sure even today. But its worth writing about mostly because I need to cover a topic that is lighter. Lots of bad economic news from around the world: The Greek people may vote on whether to accept a bailout, if not vote outright on whether to remain part of the Eurozone; Belgium's largest bank has failed -- a bank that is the primary lender to U.S. municipal governments; and a ballot issue here in Ohio is being misrepresented so badly by its opponents that if it is passed, I am convinced that a number of companies that want to move business operations here will opt to go elsewhere.

So I am writing about "The Condo At The End of The World."  Intrigued???

Apparently there are a number of these condominium living spaces, originally designed to withstand a detonation. Figured it out? Yep. These are cold-war bunkers -- old missile silos -- now converted to living space. And they dot the landscape across the U.S.

The author of the piece I have linked to above also notes that there are a number of elite, weathy survival types who are betting that problems are coming to this country -- perhaps similar to the riots they have had in Greece, Italy and France -- and that they better well have a place to hole up.

Which has created a fascinating cottage industry within the real estate world -- the resale and conversion of old missile silos into useable living space.

A fascinating read. Now back to the economics of commercial/investment real estate . . . Hmmm. But its a sunny day out. Frankly, I'd rather not. Snow is coming in the next week perhaps.

For now I'll enjoy the sun . . .