Office Space Leasing Decisions Should Consider Collaborative Work Needs

One of the first steps to increasing your company’s productivity may be found in the design and functionality of your office space and how it is used by your employees. Many research studies have found a direct correlation between office space and productivity. Cushman & Wakefield and CoreNet Global recently sponsored a research study of corporate real estate executives thoughts on how to foster innovation in the workplace. One of the key findings was that if you promote collaboration among employees you can achieve better work results.

More than two thirds of the study respondents rated the quality of the physical environment as important and 34.7% saw a need to change their physical environment to improve face to face collaboration. Other results also point to the need for office collaboration-93.5% ranked “in-person interaction and human contact” as the most important contributor to innovation.

The Cost of Creating a Collaborative Atlanta Office Space

Your current office space design may be very traditional with rows of cubicles, offices with doors and a conference room or two. How can you transform your current office space to promote more productivity and collaboration? The cost of reconfiguring your entire office space and replacing office furniture may be unrealistic based on your current operating budget.  Or you may need to lease additional office space to effectively rework your office layout to have more collaborative spaces and conference rooms.

to read full post please visit Lambert CRE

RedBird LED Hires John Gilmore as Vice President of Sales

Redbird LED is pleased to announce that LED lighting industry veteran John Gilmore has joined their sales and management team as the new Vice President of Sales. Redbird LED is an Atlanta, GA. firm that specializes in the design, manufacturing and distribution of premium energy efficient LED Linear Replacement Lamp products. Previously, John Gilmore was leading the LED Lighting sales efforts for SEESMART LED. In his new role, John will spearhead the sales and marketing of RedBird LED Tube Lights to lighting distributors, major national corporations, state and federal agencies, retailers and institutional owners throughout the United States.

Jonathan Eppstein, President of Redbird LED said, "We are excited that one of the most successful sales professionals in the country of LED Tube Lights has joined RedBird LED. John's commitment to RedBird validates our belief that there is a large demand for premium quality- high performing LED Linear Replacement Lamp products. The recent certification by the DesignLights Consortium for both our 22 watt and 18 watt Cardinal Linear Replacement Lamp products, which prequalifies them for many energy rebate programs, was a key factor in John's decision to join our firm at this time. Culminating several years of development and testing, the Cardinal LED Linear Replacement Lamp has become first, second, and still the only LED tube light in the world to receive DLC Certification."

In his previous position with SEESMART, a leading LED lighting distributor, John was responsible for managing the lighting sales operations, marketing strategy development, introduction of new products and managing key client accounts. During his tenure , sales revenue increased 92% to $11.5 million in 2011. Over this same time period his personal sales volume exceeded $7 million, including two of the largest LED Tube lighting contracts, Pasadena City College and General Services Administration. His previous clients included; Department of Defense (Army, Navy, and Air Force), Homeland Security, Department of Justice (correctional facilities), Department of General Services (City of Los Angeles), airports, schools, universities, and various municipalities throughout the US.

"I'm absolutely thrilled to be part of RedBird LED", says John Gilmore. "Jonathan is a brilliant engineer with a great vision. The fact that Redbird is exclusively focused on building the finest LED linear replacement lamps allows me to continue to build on my experience in marketing products in this category. Our plan is to leverage the Cardinal lamp's quality and DLC Certification to become the number one LED tube supplier in the world over the next year. Having the 18W tube on the DLC's qualified product list will allow us penetrate the massive fluorescent tube retrofit market, which has become a more immediate need with the recent obsolescence and subsequent unavailability of the older T12 style fluorescent tubes. Adding a rebate incentive to the basic energy savings, will allow the customer to see a complete payback in less than 1 year in many cases.

Over the past 5 years I have learned a tremendous amount about LED linear tubes. When I met with Jonathan and reviewed the RedBird LED technical data, the decision to make the move was very easy. It is truly the best LED tube in the world today!!"

About RedBird LED - Redbird LED is an Atlanta based designer and manufacturer of LED linear lights. Their company mission is to focus exclusively on providing quality LED linear light solutions to their customers. Redbird LED's core technology is in their premier linear LED light, designed and engineered specifically for retrofits of traditional fluorescent tube lights.

Ernst & Young To Save $1 Million Dollars Annually After LED Lighting Retrofit

Ernst & Young recently completed  one  of the largest LED lighting retrofit projects in New York Cty by replacing less energy efficient ligting at its headquarters office building in Times Square.  It is estimated that Ernst& Young will reduce their lighting and mainteance costs by 50% and will save at least $1 million dollars per year in lighting energy costs.The Ernst & Young headquarters building is 32 floors with 650,000 square feet of office space and houses 5,800 employees.

LED Lighting Retrofits Consistent With Firms Energy Policies

"Reducing the carbon footprint of our office space is part of our firm-wide strategy to reduce our environmental footprint as our business grows," says Leisha John, Ernst & Young Americas Director of Environmental Sustainability. "In fact, by the end of 2013, we plan to have a majority of our employees working in LEED and or Energy Star certified space. The completion of this lighting retrofit project in the New York office brings us one step closer to that goal, and will be part of that office’s Energy Star application.In addition to reducing our energy footprint, green technologies like LED help us to reduce our operating expenses, which is a best practice for any company," said John. "This project is the result of the collaboration between several infrastructure groups within Ernst & Young LLP, particularly the Facilities and Real Estate teams, and the Climate Change and Sustainability Services professionals, who advise clients on sustainability practices."

Companies Are Saving Millions of Dollars Per Year with LED Lighting Retrofits

Companies as varied as Ernst & Young, Marriott Hotels and the owner of the Empire State Building are saving millions of dollars by installing energy efficient LED lighting. The reason- LED lighting lasts for years and reduces lighting energy costs by up to 50%. The payback is relatively quick, often less than two years.One hurdle is the upfront cost of replacing your current outdated lighting with the more energy efficient LED Linear replacement lamps.

RedBird LED Inc., an Atlanta, GA. firm that specializes in the design, manufacturing and distribution of high quality energy efficient LED linear lighting products for industrial and commercial applications, has addressed this problem by introducing new LED lighting products that qualify for energy efficient rebates from selected Utility Companies. These Utility Companies are members of the DesignLights Consortium. The DLC recently certified the second RedBird LED Cardinal™ LED Linear Retrofit product.  In May, RedBird LED received certification by the DLC for their 22 watt LED Linear Replacement Lamp at both 4100K and 5000K CCTs.  The RedBird LED 18 watt Cardinal™ LED Linear Replacement lamp  has now also been certified by DLC as a Qualified Product.

 Culminating several years of development and testing, the Cardinal™ LED Linear Replacement Lamp has become both the first, second, and still the only LED tube light in the world to receive DLC Certification.
By establishing the Cardinal LED tube light's position on the Qualified Product List of the DLC, RedBird LED has ensured that these products will be eligible for all rebate programs currently in place among the DLC's membership and will facilitate rapid approval by other rebate sources as well.

Lighting Retrofits Can Reduce Lighting Costs by 55% or More

The 18 watt linear replacement lamp is the most popular model used for one to one fluorescent lighting retrofits of standard 32 watt T8 or 40 watt T12 fluorescent lamps. When retrofitting with a Cardinal LED tube the user will expect to save as much as 55% on their energy consumption when compared to a standard 40 watt T12 model or 40% on a 32 watt T8. With this level of savings and the rebates available, the customer can see paybacks as low as 9 months in many states.  

JonathanEppstein, President of RedBird LED commented, “While we were ecstatic to have been the first, and only LED Linear Replacement Lamp to have qualified for DLC Certification with our 22 watt product in May, the DLC Certification for our 18 watt lamp is an even more exciting event. We expect the DLC Certification of the 18 watt Cardinal Lamp to dramatically increase the adoption and deployment of this breakthrough product.  Having both our 22 and 18 watt LED tubes on the DLC Qualified Product List solidifies our position as the market leader in this sector of the LED lighting industry.”

Contact: info@redbirdled.com  678-RED-BIRD (678-733-2473).

State Farm Expands in Atlanta Bringing 500 New Jobs

This past friday, Governor Deal announced that State Farm, the largest insurance firm in Georgia, is expanding- leasing almost 400,000 square feet of office space at the 64 East Perimeter Center and 66 East Perimeter Center office buildings. State Farm anticipates hiring 500 employees for their new customer service/sales center.

The Atlanta Journal-Constitution reported that, "The financial, professional and business service industries account for about one-fifth of Atlanta’s 2.3 million jobs and have added roughly 11,000 positions during the last year." The news from State Farm represents another large increase in professional sector jobs for Atlanta. “Obviously, three years into this economic recovery we still have a very soft labor market in Atlanta and nationwide,” said Roger Tutterow, an economics professor at Mercer University. “So we readily welcome 500 jobs in any capacity.”

This is great news for our city. The same day, The Atlanta Journal-Constitution featured a large screaming headline about Georgia ranking as the number one state for residential foreclosures. An easy headline to write, but the State Farm announcement is very important for many reasons.

 For the real estate industry this is one more major office space lease that takes a large available amount of contiguous office space off the Perimeter Center office market. The Atlanta economy will certainly benefit from these new jobs which will include clerical, technical and management positions.

This is the third time in the last 12 months that State Farm has expanded and announced new job creation. “This expansion is just another way State Farm continues to adjust to meet the changing needs and preferences of our customers," said State Farm Senior Vice President Tim McFadden. State Farm is currently ranked No. 43 on the Fortune 500 list of largest companies and has more than 65,000 employees.

The State farm customer service center is expected to open in the Fourth Quarter of 2012.

Terminix Saves 20% on Office Space Rental Costs Through an Early Renewal and Extension of Their Office Lease

Terminix, recently signed a new office space lease to remain in their current office space. They were able restructure their current office space lease and an early extension for 15,762 square feet for their regional contact center in Norcross. Terminix will not only reduce their rental costs by 20 percent , they will also receive capital for improvements to  the entrance and lobby of the their office.

Many companies are looking to reduce their real estate costs by taking advantage of current market pricing and conditions. A creative way to do this is to restructure your current lease through an Extend and Blend leasing agreement. The Extend and Blend is simple amendment to a current lease that extends the length of the lease and usually includes additional incentives from the building owner. These incentives can include reductions in rental rates, operating expenses and in some cases tenant improvements. 

Terminix was able to reduce their real estate costs by planning early and signing an extension while they still had more than a year left on their current office lease. Because the office space vacancy rate for the office submarket is high and Terminix is in a growth phase , the landlord was motivated to keep Terminix as a tenant in their building. Terminix announced this year that they would be hiring additional workers at this regional call center.

For more information on the Extend and Blend lease program please download the Extend and Blend leasing program brochure. 

Complimentary Course on FAS 13 Accounting Changes

John davis version fasb 13 iasb 17 (2)

View more presentations from johndavis1550

How Will Lease Accounting Changes Impact Sale/Leaseback Transaction

Many CFOs have realized many benefits in the past from sale/leaseback transactions. Selling Commercial property and leasing it back has allowed many companies to free capital that has been tied to real estate and redeploy this capital more strategically. New lease accounting changes may change this market dramatically. This topic was recently addressed in an article In CFO Magazine.

Space Race
By Russ Banharn


...All of this would sound even better if it were not for the proposed changes to lease accounting currently on the table. The Financial Accounting Standards Board and the International Accounting Standards Board have both proposed major alterations in lease accounting (see "Taking the 'Ease' Out of 'Lease'?" December 2010). Under the proposals, tenants would be required to place the obligation to pay rent over the entire lease term on their balance sheets as a liability. Right now, only the current rent is booked on the financials, as an expense on the income statement. Many observers predict these changes will be adopted.

If so, those companies seeking to spruce up their balance sheets by eliminating mortgage-debt obligations through a sale-leaseback may change their minds, since a lease liability would effectively treat all leases as a capital lease, which would gum up the balance sheet. "If a company is trying to raise capital, a sale-leaseback would still be a very viable option," says NorthMarq's Houge. "But the proposed changes to the accounting standards will affect other agreements, such as credit agreements requiring a minimum debt coverage ratio, and that could be a problem."

Others predict that future sale-leaseback deals will involve shorter-term leases, in the 3-to-5-year range. "If the rules change, the longer the lease, the greater the liability, so companies may want shorter leases than the typical 10-to-20-year term that makes sale-leasebacks work," says White of Real Capital Analytics. "It comes down to a financial decision: if you can borrow unsecured debt cheaper than what a real estate investor is offering, you may pass."

to read the full article please visit
http://www.cfo.com/article.cfm/14550844/3/c_14551704?f=search

Surplus Property Course for CFOs

Surplus property strategies course2 p96

View more presentations from johndavis1550

CCIM Magazine Covers New Lease Accounting Rules in Current Issue

Counting Leases Before They Hatch

A proposed accounting change will dramatically affect how landlords and tenants treat leases.

by Tom Muller

The accounting profession is currently evaluating a proposed new standard that promises to fundamentally change the ways landlords and tenants account for — and negotiate — leases.Under review is a proposed rewriting of the Financial Standards Accounting Board’s Accounting Standards Codification Topic 840, which before 2009 was known as FAS 13. This topic, "Accounting for Leases," is one of many standards that together comprise generally accepted accounting principles, or GAAP, in the United States.

The draft standard has drawn much heated debate for its potential to fundamentally change the leasing market, likely shortening lease terms and dramatically reducing the apparent value of properties with traditionally long lease terms, such as office buildings.

What Is Being Proposed?

According to FASB, the proposed new rule responds to dissatisfaction with the way that operating leases are disclosed on companies’ financial statements. Current financial standards draw a distinction between operating leases — the standard landlord/tenant relationship — and capital leases, typically used as an alternative form of financing. Current rules effectively ignore the documented structure of capital leases, instead treating the leased property as if it were owned by the tenant and financed by the landlord.

FASB notes that many companies have carefully structured their leases in view of the current rules to achieve characterization as either operating leases or capital leases, resulting in strikingly different effects on the company’s financial statements. The proposed rules to a large degree would prevent this by treating all leases with a term over one year as capital leases.

The proposed new standard treats the execution of a lease as the conveyance to the tenant of an asset — the right to use the property — and the creation of a liability — the obligation to pay rent over the term. The standard creates one analysis for the inception of the transaction and a slightly different one for ongoing reporting. It also requires both landlord and tenant to adjust underlying assumptions about the future of the lease as facts that might affect those assumptions change.
Tenant Changes

For the tenant the new standard would require the following considerations.

    * At the beginning of the lease, the tenant must recognize as a liability the present value of all lease payments it is obligated to make, taking into account any extension or termination options it is likely to exercise, and estimating any contingent rent or termination payments it expects to make. The discount rate to be used for the present value calculation is the interest rate the tenant would have to pay a lender for a comparable real estate secured loan.

    * The tenant recognizes the right to use the property for the term of the lease as an asset, measured, at the beginning of the lease, at the present value of the lease payments, plus the “initial direct costs” it incurs in negotiating the lease, for example, broker’s commissions and legal fees.

    * During the term of the lease, the tenant amortizes the right to use the property over the shorter of its remaining useful life or the term of the lease.

    * During the term of the lease, the tenant must reflect any changes as they occur. For example, if, a few years into the lease, a tenant’s business changes so as to make it likely that it will pay more contingent rent over the term of the lease, its financial statements must immediately reflect that change. Or, if a change in the tenant’s business makes it more likely that it will not exercise an extension option it previously expected to exercise, it may be required to adjust its financial statements to reflect that.

CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their  costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com  


to read the full article please visit www.cire.com

CFOs Need to be Problem Solvers

Interesting article from CFO magazine about role of CFO as leader and problem solver

By David McCann

For finance chiefs with designs on the chief executive's chair, serving a stint in operations is often a prerequisite. But the lack of an important quality may be blocking many CFOs from successfully doing so, in the view of one former CFO-turned-CEO.

That quality is empathy for customers, and for the employees who serve them, says Cary McMillan, a onetime Sara Lee CFO who now runs tax-advisory firm True Partners. While it's become a cliché for CEOs to say they want a finance leader who can act as a business partner, failing to understand customer behavior and wishes may be a significant handicap in performing that role, he says.
 

Finance chiefs "tend to be supersmart people who don't always help solve problems," asserts McMillan, who left his CFO post in 2002 to become CEO of Sara Lee's then-huge apparel business. And when it comes to being a business partner, he adds, problem solving is "a million times more valuable than being technically correct on every finance issue."

Putting the highest priority on always being right from a technical standpoint is a habit that's difficult for CFOs to kick, McMillan acknowledges, since that's how they're trained. But in the end, he says, that is a "me" mind-set, whereas a "we" mentality is what pushes companies forward.

McMillan developed an appreciation for the "we" approach during 19 years at Arthur Andersen, where he rose to become head of the firm's audit practice and managing partner of the Chicago headquarters office. "I was one of the few line partners who were actually interested in how the firm was run," he recalls. "Almost everybody else — because this is how we trained them — was interested only in their own activities. I got involved in management by throwing myself in there."
Cary McMillan, True Partners

That facility for stepping out of the box clinched Sara Lee's decision to offer him the CFO job, says McMillan. "They could see me as more than just a client-service provider; as somebody who was interested in working on the entire entity, not just one part of it."

It was a heady role for a career audit-firm partner, with Sara Lee sometimes mentioned in the same breath as such finance-professional incubators as PepsiCo, General Electric, Kraft, and Johnson & Johnson. The conglomerate's highly decentralized structure put finance executives in the spotlight, says McMillan, with sales, marketing, purchasing, and supply-chain functions all pushed out to the many business units.

Indeed, he took the job worrying whether he was qualified to be CFO. He had never had to deal with treasury matters or investor relations, for example. "I thought I only had about half the experience I really needed," he says. "But I found that the half I had, in accounting and internal controls, was helpful with the other side."

He earned some treasury chops by helping to arrange hedges on the company's receivables with Kmart in advance of the retail giant's bankruptcy. Although Sara Lee Branded Apparel was one of Kmart's largest creditors, "we didn't lose a penny," says McMillan. And the passage of Regulation FD during his first year on the job turned out to be blessedly timed, because everyone was in the same boat grappling with the transition to a new mandate for disclosure to investors.

to read full article please visit http://www.cfo.com/article.cfm/14544598/c_14545252

Software Programs Help Companies Prepare for New Lease Accounting Changes

Originally published in National Real Estate Investor

By James Duport and Ken Brown

Big changes are on the way for companies that are significant holders of real estate. It’s hard to say exactly when the much talked about and anticipated FASB lease accounting changes will go into effect, but companies with real estate holdings in particular need to be prepared for the significant impact these new rules will have on lease commitments.

Change is never easy, but the transition doesn’t have to be traumatic. On the contrary, required adherence to these new FASB rules, which are being put in place to enforce transparency and full disclosure, actually has a silver lining. It presents the opportunity for companies to update software and technology, which may be outdated anyway, in order to manage their real estate holdings and move to a faster, broader, more accommodating and flexible system.

Under the new proposed law, lease commitments must be on the balance sheet from day one, which is why older technology will no longer do the job. But, before we address effective ways for companies to achieve leasing compliance, it is important to first understand why the laws of lease accounting are changing.

Current lease accounting guidelines were adopted 30 years ago and are outdated by today’s business standards. The biggest difference between the old and new rules pertains to off-balance sheet accounting. The proposed new rules will bring all assets currently under lease onto the balance sheet and take into account international real estate portfolios, too. The new rules will also include a single worldwide leasing standard, which is important as real estate companies continue to go global.

For most companies, and especially those with large, international real estate portfolios, the sheer thought of overhauling the leasing structure of all their properties is overwhelming. But, thankfully, the implementation of advanced lease administration technology can successfully support a company through this process.

It will be difficult, if not impossible, to become compliant with the new lease accounting laws without some level of lease administration software support. When considering which software to implement, be sure the product is Web-based and that it provides a system of record for all of the leased real estate assets.

That includes leases, subleases, purchase agreements, franchise agreements, equipment leases and more. Be sure the software is completely transparent with regard to location information, critical dates and expenses, and that it integrates workflow.

It should have the ability to create pro-forma leases and integrate MS Excel financial models. It should also be able to handle complex reporting and compare multiple lease financials to support decision-making, and standardize all leases in a portfolio to streamline the cumbersome process.

It’s a lot to take into consideration, but there are companies that have been anticipating these changes and updated their technology with the new FASB rules in mind. The right technology should make life easier.

You can audit your current lease administration system and take stock of all of the capabilities you need and would like in an updated product. Then, do the research to locate the technology that will work best with your real estate and lease commitments.

It’s no secret that the new FASB rules promise to radically transform lease accounting and if you are a significant user of real estate, they will radically transform the way you do business, too. But there are lease administration software programs on the market that will make it easier to deal with many of the initial challenges that accompany such a transition.

Jim Duport is the creator and lead developer of Lucernex Technologies Lx LseMod products and the Lucernex financial engine. He created v15, set for release later in the fourth quarter, to support potential FASB changes. Lx LseMod is a corporate lease analysis tool used by companies including GE, MetLife, Robert Half, Cigna, National Semiconductor, United Technologies, Yahoo and Intuit.

Ken Brown designed mass market software in the 1980s and designed SLIM lease administration software. He is executive vice president and CIO of Lucernex and head of Lucernex product development.

CFO Magazine Updates Lease Accounting Changes to Come

With the December 15th deadline for comments on the lease accounting changes fast approaching many commercial real estate owners and tenants are wondering how the changes will impact them.Many would just as soon see the lease accounting rules stay the way they are. But it is clear that the way companies account for real estate leases on their balance sheets is headed for big changes. The experts agree on one thing- the time to prepare for these changes is in 2011 or sooner!

CFO magazine recently published an interesting article on the impact the lease accounting changes will have on commercial real estate buy vs lease decisions, the length of leases, renewal options and the end of net leases. An excerpt of the article is below:

By Marie Leone
CFO Magazine


Accounting-standards setters are under fire, again. The new leasing standard, proposed jointly by the Financial Accounting Standards Board and the International Accounting Standards Board, has been characterized as naïve, lacking value, and in need of serious reevaluation. The outcry comes not from a handful of opponents but from companies on both sides of common lease contracts — those that rent office space, copiers, or airplanes and those that own the assets.

At the center of the maelstrom is the "right-to-use" asset concept, the accounting mechanism that places leased assets and liabilities on the balance sheets of lessees, as if they owned the assets. That would essentially eliminate operating leases. Credit Suisse estimates that, within the S&P 500 alone, the volume of assets returning to balance sheets could surpass $550 billion.

At those levels, asset ratios could be thrown out of whack, potentially sending debt covenants — if not adjusted — into default, says Ross Prindle, a managing director with Duff & Phelps, while also requiring banks to increase their regulatory capital and wreaking havoc on compensation plans tied to the asset measures.In addition, the proposed standard (called Topic 840 by FASB) requires lessors to recognize assets and liabilities in a new way. A lessor must recognize an asset as representing its right to receive lease payments and, when appropriate, record a liability as representing the contractual right of others to use their equipment or real estate.

Then, based on how much residual value the lessor estimates it will retain at the end of the lease, it must also use one of two accounting approaches laid out in the draft: either the performance obligation or the derecognition model. If the rules seem complicated, that's because they are, says D.J. Gannon, a deputy managing partner with Deloitte. However, he says the proposed changes are well intentioned: rulemakers want to curb abusive leasing practices by companies that structure around the 90% ownership test that currently determines whether a contract is an operating lease and can therefore be removed from their balance sheets.

Be that as it may, in the year-plus since FASB issued its first discussion paper on the topic, more than 300 comment letters have been submitted, most indicating that stakeholders are not convinced that the intended benefits will be worth the additional cost and effort.The comment period is open until December 15, and two days later FASB and the IASB will hold the first of four new "outreach" meetings to get a better handle on what worries constituents. The boards plan to release a final rule during the first half of 2011.


Lessor Has More
What's interesting is that most critics are less concerned about the concept of capitalizing all leases than with how FASB and the IASB propose to treat the leases after bringing them back on balance sheets.
"The board is naïve if they don't think the same kind of structuring will occur under these rules as exists with the bright-line test," asserts Shawn Halladay, a principal at The Alta Group, a leasing-industry consultancy. Halladay says that lessees have only to structure leases for shorter terms to push more of the asset value from their balance sheets. That's because shorter-term leases require the lessor to retain a larger portion of the asset's residual value.

Lessor accounting gets more complicated if the company retains a "significant" amount of the asset's risk or benefit. At that point, a lessor is required to use the performance obligation approach, which forces the company to carry both the asset and the total lease payment receivable (at the receivable's present value) on its balance sheet, as well as a performance obligation liability. In contrast, current capital lease rules require the lessor to carry a lease payment receivable on its balance sheet, but not the underlying asset.
The other accounting model available to lessors is the derecognition approach, which is used when the lessor retains a low residual value on the asset. The impact of the two-method treatment is sure to create "a greater divergence in practice among lessors," says Michael Fleming, also a principal at The Alta Group.

Lessors that hold real estate for investment — most notably in real estate investment trusts — may get a chance to avoid leasing rules completely, says Mindy Berman, managing director at Jones Lang Lasalle, a real estate services firm. Soon FASB will issue a proposal that requires real estate investment holdings to be measured at fair value, testing periodically for impairment, instead of following lessor accounting rules.

to read the full article please visit www.cfo.com

Still Many Questions Among CFOs About Bank Reform

As reported by Vincent Ryan in CFO Magazine

Two years after the fall of Lehman Brothers, the immense overhaul of the banking system is just beginning, and it is far too early for companies to breathe a collective sigh of relief. The banking system is safer — but not by a lot. Banks now have larger capital buffers, and the complex collateralized debt obligations (CDOs) that wrought so much destruction are nearly extinct. Yet 11% of retail banks remain at risk of failure, says the Federal Deposit Insurance Corp. (FDIC).

The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act represents not a regulatory finish line so much as the firing of a starter's pistol that will kick off a marathon of rule-making and second-guessing. Key questions remain about how much reform will come to pass, when, and what it will ultimately mean for companies. "Regulation is always in catch-up mode — there's no way around it," says Cory Gunderson, managing director of the U.S. financial services and global risk and compliance practices at Protiviti.


As for what has been settled and what hasn't, three key areas of uncertainty deserve watching: whether public bailouts of megabanks can be avoided in the future, what regulators have done to return commercial lending to normal, and whether Wall Street has been reined in too much, too little, or just enough.


CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large financial organizations reduce their  costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com   or call David Worrell at 888.472.5656


Too Big to Fail?

Dodd-Frank created the Financial Stability Oversight Council, a mandated team of traditionally autonomous financial regulators who now are expected to work together to ensure that the financial system does not develop pockets of dangerous dependency. The group, which held its first meeting last month, has the daunting goal (given recent history) of eliminating "expectations on the part of shareholders, creditors, and counterparties of [large banks] that the government will shield them from losses in the event of failure," the U.S. Treasury says.

Dodd-Frank attempts to ensure that by imposing greater regulatory supervision on bank holding companies with assets greater than $50 billion. It also requires nonbank financial firms and systemically important firms within the next 18 months to develop plans for rapid, orderly unwinding of their businesses in cases of severe financial distress. But will this and any of the other proposed measures prevent the U.S. government from lavishing taxpayer funds on failed banks and being the arbiter of which banks fail and which get life-saving injections of capital?

http://www.cfo.com/article.cfm/14533054?f=search

CFO Zone Reports Cash Flow Top CFO Concern

as repoted on www.cfozone.com

It's all about the cash flow.

The biggest concern among chief financial officers these days is cash flow. Not the economy, not jobs, not health care, not the elections.According to a survey conducted by TD Bank, 69 percent of CFOs and other corporate finance managers at mid-sized businesses say they are most worried about the intense challenge of managing cash flow.The survey of 100 CFOs, controllers, treasurers and other financial executives also found that proper capital allocation and cash flow management will also be next year's top financial management priorities for 41 percent of respondents.

When it comes to cash flow, the survey respondents said the most significant risks over the next year will be an increase in non-performing accounts receivables (21 percent) and reduced sales (19 percent). Only 5 percent of respondents cite the economy as the biggest threat.While CFOs are worried about cash flow, they are not planning to take drastic action. Just seven percent of the finance executives say they plan to cut expenses in 2011.

In fact, 39 percent expect their capital investments to increase next year. Of that group, 21 percent expect an increase of 10 percent or more.One-third anticipates that capital investments will hold steady. Of course, this means roughly 28 percent are planning to cut capital investments.And the most common use for this money figures to be for new technology. This is followed by improvements to existing facilities, workforce hiring and development and office equipment.

CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their  costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com   or call David Worrell at 888.472.5656

What are the most likely constraints on capital investments? The finance pros most often cited cash flow (46 percent), followed by unsure levels of funding from clients and government (18 percent), as well as the political climate, including government regulations and policies (13 percent).

Otherwise, CFOs seem to share the kinds of sentiments most people seem to hold these days. For example, 78 percent acknowledge the economic recovery could take up to two years to materialize while nearly half believe the surest signs of a lasting upturn will be falling unemployment rates, sustained growth in their own organization's sales and an influx of new customers buying their products and services.

Other financial challenges include interest rate volatility, a key concern among more than half of the respondents (55 percent), followed by adequate access to credit for 52 percent.

http://www.cfozone.com/index.php/Newsflash/CFOs-Cash-flow-is-top-concern.html

Bank CFO Talk About Commercial Real Estate Lending

As reported on www.costar.com,
Article by Mark Heschmeyer

"Maybe it is time we start taking bankers at their word that commercial real estate wasn't and isn't a catastrophe waiting to happen. Maybe, just maybe, as they've been telling us for the last four consecutive quarters, there are serious risks but they are manageable and are being dealt with and disposed of.

Why, now?

Because third quarter commercial bank earnings reports released in the last week seem to back up that talk. Individually, there are definitely still banks in trouble. But collectively banks seem to be on the tail end of their commercial real estate troubles. Distressed loan levels have stabilized, the amount of new delinquencies is decreasing and more banks are beginning to push troubled assets back into the marketplace.

Banks' exposure to CRE loans has been a source of concern for many observers, said James Abbott, senior vice president, investor relations and external communications for Zions Bancorporation, but "so far that is not playing out in our portfolio and has been reasonably benign around the industry."

In fact, there are a lot of indications the commercial real estate market is stabilizing and even strengthening, Abbott said.

"If you look at CMBS spreads and some other indicia of this, it's appearing that maybe we're not going to see the kind of storm some had predicted," he said. "But I think it's going to take another two or three quarters perhaps before it's really clear that there aren't substantial losses around the industry in that product type."

Some banks even reported in their quarterly earnings conference calls that they are gearing up for increasing their commercial real estate lending activity or seeing renewed interest in borrowing. Such banks are still the exception, not the norm, but we haven't heard this kind of chatter since 2007.

"I would say that we've continued to be very judicious in the commercial real estate area," said Jerry Plush, senior executive vice president, CFO and chief risk officer of Webster Financial Corp.

"[We] continue to look for opportunities that make sense for us, and we're continuing to see that there is definitely some build-up in the pipeline there that we could see in the coming quarters," Plush added. "We're not saying that there is going to be substantial growth," Plush said. "It would be either to maintain balances or slightly above, but soon you will start to see the emergence of those small business and middle-market numbers rising in the commercial category."

Rene Jones, chief financial officer of M&T Bank Corp., said her bank is seeing customers paying down debt and repositioning themselves for future expansion.

"We’ve seen in the commercial real estate space a number of pretty well healed commercial real estate folks actually just looking at the liquidity and their portfolio, maybe selling down some projects to improve the overall liquidity position," Jones said. "But overall, our commitments aren't up, so I think people are just on hold. The rates are low, they’re trying to lock in some credit today but they’re not necessarily using it because they’re not yet investing."

Beth Mooney, vice chairman of KeyCorp, said they are definitely starting to see stability in commercial real estate, particularly the middle market loan book.

"We have obviously seen that client base de-lever over the last seven to eight quarters. But if you look into the trends from the first, to the second, to third quarter, we had the lowest level of decline in this quarter that we’ve seen through the cycle and we are actually starting to see, particularly in our Great Lakes and Northeastern regions, signs of increased new business activity and modest glimmers of loan growth," Mooney said. "However, on net you still see pressures in the Western markets. They were late into the cycle, but we do see some pickup in business activity and clearly signs of stability in the middle market book, as well as in the core leasing portfolio, which intersects with a lot of that same client base of renewed activity."

Bank executives also highlighted a greater willingness to sell buildings and reported more success in disposing of troubled assets on their third quarter earnings conference calls.

"We’re very pleased with the overall results of our problem assets disposition strategy, and the momentum we are building toward this effort," said Clarke Starnes, chief risk officer and senior executive vice president at BB&T Corp. "In the third quarter, we actually assembled a team of about 12 sales specialists, together with some significant operational and marketing support to begin a sales program for about $1.3 billion in commercial nonperforming loans that were transferred to the held for sale category."

"Our effort consists of a four-pronged strategy. It’s in this priority: short sales to the borrowers; third-party direct; third-party bulk, and then some other option," Starnes added. "We get our best pricing execution when we’re dealing more directly with the borrowers, but it takes a longer time to do that. At auctions you can do it much quicker, but you’ve got to do your discounts. So what we’re really trying to do is blend these various liquidation alternatives to achieve the best execution that we can, while balancing the time to liquidate."

Bob Kaminski, COO, executive vice president at Mercantile Bank Corp., said: "I think our staff has done a good job of working with borrowers on properties that were even in foreclosure to try to affect sales of those properties so that they may be never make it into the ORE bucket. Loans that do make it into foreclosure due to foreclosure process, many times have buyers that are waiting at the end of the redemption period to complete those sales."

"So it’s really on a page-by-page basis," Kaminski added. "You have some properties that are little bit hard to sell, may be spending a little bit of a longer time in the ORE buckets, and others that are more attractive from a purchasing standpoint tending to spend a lot less time in those categories."

Mary Tuuk, chief risk officer of Fifth Third Bancorp, said they have been very focused on higher risk portfolios such as non-owner occupied real estate.

"We’ve worked hard over time to achieve the best solutions possible on troubled credits," Tuuk said. "As part of that process, [the special assets group] continually identifies the loans most likely to result in a successful workout given enough time and which loans are less likely to result in an acceptable outcome. For that latter group of loans, our options include a long-term workout strategy or a shorter-term solution, one of which is the possibility of selling a loan and the redeploying the resources that would be devoted to a longer-term solution."

"We are marketing these loans in several pools targeted at particular (buyer basis). Land loans in one pool, vertical CRE in another, syndicated loans in another and a final pool that we intend to sell to investors, loan-by-loan," Tuuk said. "These loans, particularly the nonperforming ones, would generally represent the more troubled parts of our commercial portfolio with a high content of commercial real estate in general, particularly land and construction."

National Real Estate Investor Covers New Lease Accounting Rules

From www.nreionline.com

Proposed new accounting standards have been drafted in order to push lease liabilities back onto corporate balance sheets. Such a change would represent a major shift for companies that have typically favored the off-balance-sheet treatment of operating leases, and it could have a significant impact on corporate decisions to lease or purchase real estate in the future.

The proposed guidelines are a joint initiative by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board to create a uniform global standard and greater corporate transparency in lease accounting procedures. The most recent draft issued Aug. 17 would establish one method of accounting that requires firms to recognize all lease liabilities and assets on their corporate financial statements.

Another key component is that companies would be required to record the lease value or rent commitment over the entire lease term, including renewal options. Although the intent is to stop off-balance-sheet activity, the changes would add significant weight to corporate balance sheets.

For example, a firm that pays $1 million per year in rent for its corporate headquarters would quickly see its liability multiply depending on whether it has a five-year or 15-year lease. Companies would appear more highly leveraged, which could affect factors such as corporate credit and existing debt covenants.

Crux of the matter
What makes commercial real estate industry professionals nervous is that it is not clear to what extent the new accounting guidelines would influence tenants’ decision-making process. Based on the universe of leased space, the potential impact is enormous.

Although FASB cites data that values leasing activity at $640 billion in 2008, other industry sources estimate that current volume as high as $1.3 trillion in operating leases for U.S. firms alone. Once the guidelines go into effect, which many in the industry believe will occur in 2013, both new and existing leases would be immediately affected.

One fear is that the new accounting practices could deter companies from signing long-term leases, or encourage firms to own rather than lease facilities. Both of those factors could be a detriment to the sale-leaseback and net-lease finance niche where leases typically extend 15 years and beyond.

Sale-leaseback transactions have accounted for $24.8 billion, or slightly more than 50%, of the $46.6 billion in single-tenant sales globally over the past 12 months from June 2009 through June 30, 2010, according to New York-based Real Capital Analytics.


Please visit www.nreionline.com for the complete article.

The lease accounting changes are expected to effect how companies view their real estate holdings and real estate asset management strategies in the future. Some analysts predict the changes will not be reflected on the balance sheets until 2013, but companies need to start the planning process now. Certainly there is need for a complete lease audit process to determine how many individual leases exist and how they could be impacted when they no longer are considered operating leases.

But important decisions will need to made on excess real estate space. In the past one option was subleasing the space to another tenant. Not a perfect solution but subleasing had some advantages. When the lease accounting rules change, subleasing will not remove the lease from the balance sheet and increases risk for the company in their new role as a landlord to the company that is subleasing space.

A better solution would be a Negotiated Lease Buy-Out or Lease Termination program. These are complicated transactions and you should employ someone with direct experience in corporate real estate finance and taxation. One company that has a long track record negotiating  commercial real estate lease terminations is Cambridge Consulting Group. They have saved companies such as Bank Of America and Ford Motor Credit millions of dollars by reducing their lease obligations. For more information please visit their commercial lease termination website- www.commercialleaseterminations.com.

Value Energy Solutions Provides Energy Savings With Lighting Retrofits

Value Energy Solutions recently completed a parking garage lighting retrofit project for the Gables Midtown Apartments in Atlanta, GA. Value Energy Solutions is one of the largest lighting installation and lighting retrofit companies in the nation.  For the past 30 years they have provided multifamily owners, developers and property managers with turnkey lighting solutions that exceed customer expectations and reduce lighting and energy costs. Gables Midtown is one of the newest apartment communities in the Morningside/ Ansley Park neighborhood of Atlanta and offers residents numerous amenities including Earthcraft and Energy Star certified apartments.

 Gables Midtown management is proud of their focus on energy efficiency and water conservation features. When it was time to upgrade the energy efficiency of their parking garage lighting they contacted Value Energy Solutions. Value Energy Solutions thoroughly reviewed the existing parking garage lighting and the Gables Midtown energy saving goals. Originally, the parking deck lighting was the less energy efficient 175 watt Metal Halide Lights. Value Energy Solutions recommended retrofitting the parking deck with 2-Lamp 54wHO (high output) Vapor Tight Fluorescent lights. Gables Residential selected a 46,000 hour (extended life) rated lamp to maximize their energy savings and reduce lighting maintenance costs.

The projected energy savings for the lighting retrofit project is an impressive 47% and the cost of the lighting upgrade will pay for itself in only 17 months. Originally, Gables Midtown was considering using LED lights in the parking garage but Value Energy Solutions was able to offer a more cost efficient lighting retrofit program using new fluorescent lighting technology. Unlike many lighting companies that offer only one lighting product, Value Energy Solutions works with more than 250 lighting manufactures to provide their customers with the right solution at lower price point.

About Value Energy Solutions- Value Energy Solutions is one of the largest energy efficient lighting retrofitting companies in the United States. Realizing the need for building owners, property managers and facility engineers to find ways to conserve energy and cut their operating costs, Value Energy Solutions provides improved energy efficient lighting products as replacements for existing higher wattage fixtures. Value Energy Solutions was launched as a new venture by owners Dean Nations and Alan Carlquist as an expansion of their existing company, Value Lighting, Inc., a premier lighting wholesaler and distributor of lighting products.

The Value Energy Solutions lighting retrofit programs are offered for all commercial building types including Parking Garages, Warehouse/Industrial Buildings, Hotels, Retail Chains, Apartments and Office Buildings. For information on Value Energy Solutions please call Chris Owens, Director of Sales at 770.874.2191. Value Energy Solutions is located at 1110 Allgood Industrial Court, Marietta, GA 30066. To request more information please call or email at info@valueenergysolutions.com.

Lease Accounting Rules Will Have Large Impact on Retailers

As reported in Retail Traffic

Proposed new lease accounting standards from the U.S. Financial Accounting Standards Board and the International Accounting Standards Board have the retail real estate world dizzy with worry as property owners and managers fear the new standards will cripple tenants and lead to shorter lease terms and more conservative expansion strategies.

Financial Accounting Standards 13 (FAS 13) would require all lease liabilities to be accounted for on corporate balance sheets as capital leases rather than as operating leases. That’s an important distinction because operating leases allow tenants to account for lease liabilities as they are incurred. In contrast, capital lease liabilities must be accounted for in their entirety every quarter.

In addition, the new standards would require corporations, including retailers, to account for the full potential liabilities of leases—including options and percentage rent, not just the base rental fee. They would have to provide estimates on all contingency-based payments built into the lease, including lease renewal options, rent based on a percentage of sales and co-tenancy kick-ins.

CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their  costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com   or call David Worrell at 888.472.5656


So, for example, a retailer would have to account for the entire potential 15 years’ worth of costs on a lease with a five-year term and two five-year options. As a result, retailers’ debt loads could appear to balloon up to ten times their current levels.

The Securities and Exchange Commission has estimated that more than $1 trillion in operating leases throughout the entire commercial real estate sector would need to be reclassified when FAS 13 goes into effect. As it stands, the two accounting boards plan to finalize the leasing standards no later than the second quarter of 2011.

The problem with this is that over the past few decades, retailers, more than any other type of commercial tenant, have become dependent on using various forms of contingency rents, says Vivian Mumaw, global director of lease administration with Jones Lang LaSalle Retail, an Atlanta-based third party property management provider.

The intricacies alone will make it difficult to comply with the rule. Retail leases today typically have five- to 10-year terms, with multiple renewal options. In addition, virtually all retailers pay a portion of their rents based on percentage of sales—meaning they pay more if sales exceed a certain threshold—while many also employ co-tenancy clauses, which trigger decreases in rental rates if other retailers move out of a shopping center.

All of that will make it difficult for retail chains to accurately estimate liabilities for the entire length of each lease, Mumaw says. In order to do so, they would have to forecast macroeconomic conditions, as well as the performance of their brand and the performance of each individual store many years into the future.

To read rest of article please visit :
http://retailtrafficmag.com/news/fas13_means_retail_real_estate_10052010/

Atlanta Law Firms Reducing Office Space to Improve Bottom Line

As reported in Atlanta Business Chronicle

Atlanta’s biggest law firms are giving up floor after floor of the best office space in the city as they try to slash tens of millions of dollars in real estate costs.

Large firms that can combine the best talent with the lowest overhead will have the advantage as their clients continue to cut back on legal work and fees, industry insiders said.The latest giant on the verge of making a move is Alston & Bird LLP, which leases about 435,000 square feet between two buildings, One Atlantic Center and Atlantic Center Plaza at West Peachtree and 14th streets. Atlanta Business Chronicle has reported that many expect the law firm will consolidate into about 300,000 square feet within the 50-story One Atlantic Center.

The developer Daniel Corp. has also pitched the law firm on a new office tower.A decision could be reached in September, according to sources familiar with negotiations.Alston & Bird, the city’s largest law firm, declined to comment on negotiations, as did its broker,Cushman & Wakefield of Georgia.

Alston & Bird isn’t alone.

Given the slow recovery, and no clear picture on when job growth in Atlanta will return to the pace it saw in the mid-2000s, other big law firms are either downsizing their current office space or being much more cautious about factoring room for expansion.

Kilpatrick Stockton LLP, the city’s third-largest law firm, gave back about three floors of office space when it renewed its lease at 1100 Peachtree earlier this year.King & Spalding LLP has subleased two floors at 1180 Peachtree, real estate insiders said. The 41-story tower was built for the firm in 2006.

Troutman Sanders LLP, the city’s fourth-largest law firm, is trying to sublease two floors at Bank of America Plaza, a spokesman confirmed.In recent months, other Midtown law firms Bryan Cave LLP, Holland & Knight LLP, and Nelson Mullins Riley & Scarborough LLP have each put at least one floor of office space on the market for sublease.

The moves stem, in part, from reducing real estate costs.

Space in Midtown’s most prominent towers is expensive, often running at least $29 a square foot in gross annual rent.At that rate, a firm that signs a 15-year deal for 100,000 square feet (about four floors of office space) would pay roughly $43 million in rent over the term of the lease, excluding escalation and concessions.
A decade ago, law firms made up some of the largest deals in the city. They still do, but the days of the 400,000-square-foot deal might be coming to an end.“They don’t see any job growth on the horizon,” said Ben Raney of Raney Real Estate, which specializes in representing law firms. “Law firms of the past weren’t always as frugal with their real estate. That’s not the case anymore.”

Job losses are coinciding with the downsizing.

Alston & Bird went from 430 attorneys and 848 total Atlanta staff in 2008 to 398 attorneys and 726 total staff in 2010. King & Spalding reduced its number of attorneys from 420 and it staff from 1,050 in 2008, to 360 attorneys and 908 staff in 2010.

CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their  costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com