Saga Continues for Commercial Real Estate Accounting Rule Change

Mar 4, 2011 by

Looks like the leaders of commercial real estate are finally having some impact on the potential rule changes regarding how long term leases will be accounted for on company financial statements.  A recent article posted on CoStar, a commercial real estate web site in the US noted that 750 respondents to the exposure draft criticizied the rules as “…too complex, potentially costly and likely to result in unreliable financial reporting” and went on to say that it could potentially impact the recovering commercial and industrial real estate and lending markets by encouraging tenants to consider shorter term leases.  Most lenders frown upon short term leases when considering lending on a project as they view there is inherent risk in future leasing.  Will the landlord be able to replace the present net rental rates?  How long if at all will the space be vacant?  All factors that are difficult to determine definitively, and we all know how banks who lend on industrial real estate like definiteness.  How this will impact Calgary Industrial Real Estate owners is yet to be determined.  Various enquiries to our friends in the accounting world have yet to reveal any sweeping changes in the way Canadian companies handle these issues.  Time will tell….

Some additional background information can be found in our previous articles on this matter.

BOMA International Urges Industry to Oppose New Commercial Real Estate Lease Accounting StandardsDecember 3rd, 2010 –

Local Accountant Not Sure that Accounting Changes will effect Calgary Industrial Real Estate Owners and Tenants – October 8th, 2010 –

Accounting Rule Changes may impact Calgary Industrial Building Users and Tenants – September 21st, 2010 –