FASB and IASB's New Lease Rules: "If it's going to be on my books anyway, shouldn't I own it?"
Thanks, FASB, you totally just fucked already fragile commercial real estate (to hear CRE tell it). If you look at new FASB/IASB lease rules, it makes sense to pretty much eliminate the operating lease if transparency on the face of financial statements is your goal but then what the hell makes a lease a lease? And what's to encourage businesses to go for the lease option if they are going to have to show the lease the same way they would any other liability that isn't yet paid for?
Via CoStar Group:
Commercial real estate industry analysts say the proposed rules would have a profound and mostly negative impact on commercial tenants and landlords, with a steep learning curve amid the challenges for their brokers and other service providers. Many believe they will dramatically increase the complexity of lease arrangements and create a powerful incentive for tenants to sign shorter-term leases, while making it more difficult for owners to achieve the long-term leases favored or required by lenders and investors. It would also lead to more companies deciding to own their buildings instead of leasing them.So? Is a lease a liability?
Mindy Berman, managing director of capital markets for Jones Lang LaSalle, tells CoStar that adoption of the new rules, as proposed, "would result in a huge change in leasing behavior."
"The leasing premium will be really diminished, especially for single-tenant buildings," Berman said. "Given the enormous administrative burden and the complexity of financial reporting that will result, single tenants will be asking the question, 'if it's going to be on my books anyway, shouldn't I own it?'"
Whatever. As previously stated, it's obvious that FASB and the IASB really needed something to keep their hands busy.