Confused by the New Lease Accounting Standard?

This past August, the U.S.-based Financial Accounting Standards Board (FASB) and the European-based International Accounting Standards Board (IASB) jointly prepared a new standard for lease accounting. It’s not clear when the changes will be mandated, but it is assumed the effective date will fall somewhere between 2012 and 2013.

What is it? Simply stated, the new lease accounting standard will place all lease obligations on company balance sheets as a liability.  Basically, these changes will make companies less valuable on paper.  This is significant if you are a publicly traded company; and possibly more so if you are valuing your privately held company for sale, applying for credit or luring talent through the worth of your company.

Is all office or industrial space just another commodity, like crude oil or wheat futures?

Are all office buildings or industrial spaces so similar that they can be compared on rental price alone? When making buying decisions for personal or business reasons, we all, of course, consider price, but price is just one of many factors. The building’s performance, durability, functionality and other aspects are all factors we take into consideration when making a major purchase. For the past several years of the economic downturn, commercial rents in the Treasure Valley have fallen or remained flat. With all of the focus on rental costs, it seems that other important factors are being excluded in the decision making process.

In a real estate transaction, the agent has a fiduciary duty to his client. But what does that really mean?

In the world of commercial real estate, those of us who are involved in the leasing or selling of commercial space refer to ourselves as “agents”. Does taking the role of an “agent” create a fiduciary relationship between us and those principals? In other words, when does a person owe another a fiduciary duty? While many have tried to define the circumstances or relationships that warrant the imposition of fiduciary duties, few have completely captured the countless applications of true fiduciary duty. So I decided to do a bit of research on the topic. I came across a reference to the fiduciary relationship as “one of the most elusive concepts in Anglo-American law,” and another as “a concept in search of a principle.” While entertaining commentary, it still leaves a gap in answering the question. 

Is it Class A office space or simply “new, classy and with lots of cool doodads”?

If you have considered leasing office space in Boise anytime during the last 20 years you probably have heard the term Class A. But is the building deserving of a Class A designation, or is that just a marketing claim? The listing of which actual buildings are considered Class A, B, and C is a local decision, and since most building owners and developers always refer to their buildings as Class A, regardless of the location, construction, or design, this term can be confusing.

Could this be your situation?

Tenant Realty Advisors recently worked with a non-profit, Internet-based charter school that wanted to renew their lease under the best possible economic terms. They were willing to relocate only if there were compelling financial reasons.   TRA met with the tenant to understand what worked and what didn’t work with their current location. Then we strategized with the client on how to best meet their goals for local office space. Their goals were straightforward: They wanted to reduce their current rent costs, but wanted to avoid the expense and inconvenience of moving. They also were hoping to refresh the existing space with new carpet and paint at their landlord’s expense.

Are RFPs essential to smart office leasing?

Leasing an office space is a lot like entering into a business partnership. Ideally, the parameters are set up to benefit both parties, with each party offering something and expecting something in return. When the partnership is successful, everyone does well. And when it isn’t, well that’s a whole different topic. 

Many lease agreements begin with a “Standard Form Office Space Lease,” a generalized, standardized agreement commonly available. Tenants need to know that while common, “standard” does not mean right or fair to the tenant. Leases are usually very long, complex and often printed in very small type, and, for the most part, everyone hates to read them. To make matters worse, landlords sometimes insert complicated legal language into standardized leases, tipping the scales even more.