The Financial Accounting Standards Board’s (FASB) changes that go into effect in 2019 aren’t necessarily a crisis for commercial real estate, but they aren’t going to make investors’ job easier.
One of the goals of the FASB changes are how leases are interpreted for tax purposes. According to tech commercial real estate firm Hightower, “lease accounting changes will remove the distinction between finance leases and operating leases, and recognize operating leases as both an asset and a liability.”
This makes things more complicated for both landlords and tenants.
The National Association of Real Estate Investment Trusts (NAREIT) isn’t thrilled about the FASB changes. The organization says that the measures will negatively impact how commercial real estate business is done, due to more taxation red tape.
Meanwhile, GlobeSt.com’s Paul Bubny wrote a very good article, as usual, on how FASB changes will really impact the commercial real estate industry. He quotes experts, citing a report from CBRE and PricewaterhouseCoopers, saying that one of the challenges that landlords will face, especially if they have large portfolios, is taking account of how many commercial real estate leases they might have. Reportedly, this is tough for the bigger companies, such as large corporations, to scale.
The good news, according to the PwC and CBRE study, is that many of these major outfits have already prepared for the changes that are going to be implemented in a few years. The commercial real estate industry has certainly had the FASB changes on the front burner of legislative issues for some time now.
GlobeSt.com also reports that nearly 75 percent of all survey responders said that it is going to be difficult to put in place the changes, but they are working on it. A PwC spokesperson stressed the importance of companies taking more of a direct role in understanding the lease arrangements they have with tenants.
Finally, accounting firm Deloitte says that there is a concern about what landlords actually need to put on a balance sheet as far as the FASB changes go. It also says that sale leaseback transactions could be impacted on how they are conducted.
But this is by no means a dagger in the heart of commercial real estate. With the U.S. economy rolling along, for the most part, better than the rest of the world, the appetite of foreign investors, even in “secondary markets,” is very strong right now and looks to continue that trend unless we hit a major bubble.