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.
Showing posts with label surplus real estate. Show all posts
Showing posts with label surplus real estate. Show all posts
Wednesday, October 20, 2010
Thursday, October 7, 2010
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/
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/
Tuesday, August 3, 2010
AOL Subleasing Space from Google
As reported on www.techcrunch.com
Google apparently has a lot of empty office space in Silicon Valley laying around under long term leases. One three story building – all 225,000 square feet of it – was just subleased by Google to AOL. AOL will be moving their Silicon Valley office, currently in Mountain View, to the new location at 395 Page Mill, Palo Alto, CA.
That’s just down the street from Stanford University, and just a block away from a new Chipotle. Apparently parking won’t be a problem either, based on the satellite image.AOL only needs a third of the space they’ve leased and are moving into the third floor. But instead of leasing a smaller building, they decided to take far more than they need and sublet to startups, Brad Garlinghouse tells me. Garlinghouse is the most senior AOL exec on the west coast.
SSE Labs, a Stanford affiliated organization that operates an incubator, has already signed up to move in. Other companies are moving in as well, says AOL, but they are looking for more startups. Interested? Email Trent Herren at trentherren@aol.com to get the details.
Why all the bother? Garlinghouse says he wants the energy of the startups to rub off on AOLers: “In addition to creating a new convenient space for our AOL employees – we’re all about fostering a culture around creativity and new ideas which is why we plan to sublease our space to entrepreneurs and start-ups in the valley.”
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
Google apparently has a lot of empty office space in Silicon Valley laying around under long term leases. One three story building – all 225,000 square feet of it – was just subleased by Google to AOL. AOL will be moving their Silicon Valley office, currently in Mountain View, to the new location at 395 Page Mill, Palo Alto, CA.
That’s just down the street from Stanford University, and just a block away from a new Chipotle. Apparently parking won’t be a problem either, based on the satellite image.AOL only needs a third of the space they’ve leased and are moving into the third floor. But instead of leasing a smaller building, they decided to take far more than they need and sublet to startups, Brad Garlinghouse tells me. Garlinghouse is the most senior AOL exec on the west coast.
SSE Labs, a Stanford affiliated organization that operates an incubator, has already signed up to move in. Other companies are moving in as well, says AOL, but they are looking for more startups. Interested? Email Trent Herren at trentherren@aol.com to get the details.
Why all the bother? Garlinghouse says he wants the energy of the startups to rub off on AOLers: “In addition to creating a new convenient space for our AOL employees – we’re all about fostering a culture around creativity and new ideas which is why we plan to sublease our space to entrepreneurs and start-ups in the valley.”
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
Tuesday, June 8, 2010
Forbes Article on Need for HQ Office Space
Commentary
Why Companies Don't Need Headquarters
David F. Carr, 06.03.10, 6:00 AM ET
James Sinclair, head of the hospitality industry turnaround firm OnSite Consulting, says one of the biggest challenges his employees have had adapting to the way he runs his business is answering the question, "But where is your company based?"
The answer: Wherever the work needs to be done. "We have 65 people, and we have no office," Sinclair explains. Headquarters is a post office box; he also has an Internet-based phone and unified communications system.
Sinclair used to have an office. "Sure, we picked out a nice office with a conference room and people working away. But our clients don't want to see our office, don't want to see the conference room. They want us to come to them," he says.
OnSite is in the business of reviving restaurants, hotels and casinos that are in trouble, sometimes on the verge of bankruptcy. In past years the company has bought and rehabilitated some facilities, but today it focuses on working with current owners on overhauling management and operations. Sinclair himself has long been a road warrior, and was rarely in the office anyway. When he did come in, he believed employees felt obliged to pepper him with issues they had been managing just fine while he was away. Or he saw them doing busywork solely to impress him with their industriousness.
About 18 months ago Sinclair decided to send all his employees into the field, where they could be more productive. That made a lot of sense for consultants and salespeople. But Sinclair went further, also dispersing his administrative workers. The person who handles billing, for example, now has a desk at the site of a longtime client.
"At first a couple of clients did say something like, 'Let me get this straight: You gave up your office so you can use our office for free?'" Sinclair concedes. But he convinced them that any employee he parked at their location could at least serve as a point of contact, helping ensure a smoother working relationship.
Although employees found the "Where is your headquarters?" question awkward at first, Sinclair likes to turn it around, telling potential clients the OnSite consultants will be, well, on site 90% of the time, precisely because they don't have an office to retreat back to.
The technologies Sinclair uses include Microsoft's Office Communications Server for Internet call-routing and integration with other communication modes, such as e-mail and instant messaging. He also relies on Microsoft SharePoint for collaboration and BlackBerry Enterprise Server for mobility. OnSite has no IT staff of its own, so the technology is all managed and hosted under contract with 123together.com.
I heard a similar story from Doane Hadley, president of BizTech Solutions. I'm never quite as impressed when technology companies turn out to be showcase users of the technologies they promote, and BizTech had been a longtime beta tester for Microsoft SharePoint before adopting Office Communications Server.
Still, when Hadley decided to get rid of the firm's office in New Jersey, he did it for his own reasons. Once his company had adopted unified communications, it became easier to tell people it was OK to work at home more--especially as gas prices spiked or the weather was bad. When his office manager announced she was moving to North Carolina, Hadley decided she could work from home.
"It got to the point where there weren't a lot of people in the office anyway, and there didn't need to be," Hadley says. So he did away with it, and now all his employees work from home or from client sites.
Hadley has an agreement with a shared office facility in New Jersey, where he has one person stationed more or less full-time, and where he can have the use of a conference room if he needs it. But instead of running servers in his own data center, he now rents space in a commercial data center. "At the end of the day it's better, because we have guaranteed uptime and higher connectivity," he says.
OnSite's Sinclair believes the decision to do away with his office has been worth more than $1 million in savings, supplemented by the increased business he has netted from a more productive workforce.
One of the side benefits is that people who were formerly confined to back-room tasks are now in contact with customers, giving them the opportunity to prove their worth. And employees are happier as a result, Sinclair says. "Some of them are earning double what they were a couple of years ago--because they've proven that they should be."
David F. Carr is Forbes' columnist on technology for small to midsize businesses. Contact him at david@carrcommunications.com.
Why Companies Don't Need Headquarters
David F. Carr, 06.03.10, 6:00 AM ET
James Sinclair, head of the hospitality industry turnaround firm OnSite Consulting, says one of the biggest challenges his employees have had adapting to the way he runs his business is answering the question, "But where is your company based?"
The answer: Wherever the work needs to be done. "We have 65 people, and we have no office," Sinclair explains. Headquarters is a post office box; he also has an Internet-based phone and unified communications system.
Sinclair used to have an office. "Sure, we picked out a nice office with a conference room and people working away. But our clients don't want to see our office, don't want to see the conference room. They want us to come to them," he says.
OnSite is in the business of reviving restaurants, hotels and casinos that are in trouble, sometimes on the verge of bankruptcy. In past years the company has bought and rehabilitated some facilities, but today it focuses on working with current owners on overhauling management and operations. Sinclair himself has long been a road warrior, and was rarely in the office anyway. When he did come in, he believed employees felt obliged to pepper him with issues they had been managing just fine while he was away. Or he saw them doing busywork solely to impress him with their industriousness.
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
About 18 months ago Sinclair decided to send all his employees into the field, where they could be more productive. That made a lot of sense for consultants and salespeople. But Sinclair went further, also dispersing his administrative workers. The person who handles billing, for example, now has a desk at the site of a longtime client.
"At first a couple of clients did say something like, 'Let me get this straight: You gave up your office so you can use our office for free?'" Sinclair concedes. But he convinced them that any employee he parked at their location could at least serve as a point of contact, helping ensure a smoother working relationship.
Although employees found the "Where is your headquarters?" question awkward at first, Sinclair likes to turn it around, telling potential clients the OnSite consultants will be, well, on site 90% of the time, precisely because they don't have an office to retreat back to.
The technologies Sinclair uses include Microsoft's Office Communications Server for Internet call-routing and integration with other communication modes, such as e-mail and instant messaging. He also relies on Microsoft SharePoint for collaboration and BlackBerry Enterprise Server for mobility. OnSite has no IT staff of its own, so the technology is all managed and hosted under contract with 123together.com.
I heard a similar story from Doane Hadley, president of BizTech Solutions. I'm never quite as impressed when technology companies turn out to be showcase users of the technologies they promote, and BizTech had been a longtime beta tester for Microsoft SharePoint before adopting Office Communications Server.
Still, when Hadley decided to get rid of the firm's office in New Jersey, he did it for his own reasons. Once his company had adopted unified communications, it became easier to tell people it was OK to work at home more--especially as gas prices spiked or the weather was bad. When his office manager announced she was moving to North Carolina, Hadley decided she could work from home.
"It got to the point where there weren't a lot of people in the office anyway, and there didn't need to be," Hadley says. So he did away with it, and now all his employees work from home or from client sites.
Hadley has an agreement with a shared office facility in New Jersey, where he has one person stationed more or less full-time, and where he can have the use of a conference room if he needs it. But instead of running servers in his own data center, he now rents space in a commercial data center. "At the end of the day it's better, because we have guaranteed uptime and higher connectivity," he says.
OnSite's Sinclair believes the decision to do away with his office has been worth more than $1 million in savings, supplemented by the increased business he has netted from a more productive workforce.
One of the side benefits is that people who were formerly confined to back-room tasks are now in contact with customers, giving them the opportunity to prove their worth. And employees are happier as a result, Sinclair says. "Some of them are earning double what they were a couple of years ago--because they've proven that they should be."
David F. Carr is Forbes' columnist on technology for small to midsize businesses. Contact him at david@carrcommunications.com.
Wednesday, June 2, 2010
200 Wachovia Branches in Atlanta Will Convert to Wells Fargo in October
As reported in Atlanta Business Chronicle
As the leaves change colors this fall, Wachovia’s familiar blue and green logos will change into Wells Fargo’s red and yellow in Atlanta.
San Francisco-based Wells Fargo & Co. (NYSE: WFC) said Wednesday Wachovia signs and systems will convert to Wells Fargo in late October at almost 200 bank branches in Atlanta and nearly 280 locations across Georgia.
After the conversion, Wells Fargo will be the second-largest bank in metro Atlanta with $21.6 billion in deposits and a 19 percent market share. Wells Fargo also noted it has hired more than 200 tellers and bankers across Atlanta and more than 300 across Georgia in a shift to the Wells Fargo model.
Atlanta will remain headquarters for the company’s Southeast region, which includes Alabama, Tennessee and Mississippi. The three neighboring states to Georgia will change to Wells Fargo in late September. Other states in the East will follow.
Wachovia merged with Wells Fargo on Dec. 31, 2008. Wachovia Securities has already become Wells Fargo Advisors and Wachovia Mortgage is now Wells Fargo Home Mortgage.
Wells Fargo’s first-quarter profit dropped 16 percent to $2.55 billion. The company has $1.2 trillion in assets and provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 10,000 stores and 12,000 ATMs.
As the leaves change colors this fall, Wachovia’s familiar blue and green logos will change into Wells Fargo’s red and yellow in Atlanta.
San Francisco-based Wells Fargo & Co. (NYSE: WFC) said Wednesday Wachovia signs and systems will convert to Wells Fargo in late October at almost 200 bank branches in Atlanta and nearly 280 locations across Georgia.
After the conversion, Wells Fargo will be the second-largest bank in metro Atlanta with $21.6 billion in deposits and a 19 percent market share. Wells Fargo also noted it has hired more than 200 tellers and bankers across Atlanta and more than 300 across Georgia in a shift to the Wells Fargo model.
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
Atlanta will remain headquarters for the company’s Southeast region, which includes Alabama, Tennessee and Mississippi. The three neighboring states to Georgia will change to Wells Fargo in late September. Other states in the East will follow.
Wachovia merged with Wells Fargo on Dec. 31, 2008. Wachovia Securities has already become Wells Fargo Advisors and Wachovia Mortgage is now Wells Fargo Home Mortgage.
Wells Fargo’s first-quarter profit dropped 16 percent to $2.55 billion. The company has $1.2 trillion in assets and provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 10,000 stores and 12,000 ATMs.
Subscribe to:
Posts (Atom)
Posts
