Will new lease accounting standards change real estate strategy?

2 min read
April 17, 2019
CoStar Real Estate Manager Blog

Will new lease accounting standards change real estate strategy?

An unexpected encounter for commercial real estate teams and strategy may be the new FASB lease accounting standards. While corporate accounting departments will likely experience the most impact, corporate real estate leadership may have to change the way they think.

•    Does your real estate purchase strategy support the overall organizational goals?

•    How does your real estate portfolio fit into your asset strategy?

•    What most affects your lease vs. buy strategy?

•    Do you have detailed information readily available about all of your lease obligations?

One of the first questions your real estate organization should ask is, does your company’s existing internal systems have the capabilities necessary to capture and aggregate the essential information needed to comply with the reporting requirements of the new lease standard? Alternatively, are system, process, control, and personnel changes necessary? To ensure that implementation issues are identified early in the process, a collaborative approach from the inception of the planning stage is vital.

Those working in the real estate industry who are closest to the issue feel that the new lease accounting standard may increase the focus on real estate in general, and leasehold interests in particular.

As part of the adoption process, management will need to catalog existing leases and gather data about lease term, renewal options, and payments to measure the amounts to be included on the balance sheet. Collecting and analyzing the necessary data is projected to take considerable time and effort by a broad range of stakeholders depending on the number of leases, the inception dates, and the availability of records. Original documents, in many cases, may be difficult or even impossible to find. Other factor overlooked in the past may be embedded leases, which had not been a focus before but may need to be identified and separately recorded.

In short, the new standard will impact nearly every corporation to some extent. Implementation of the new standard will necessitate changes in the technical accounting, operational processes, and to the internal systems of many real estate departments. The most ardent recommendation is to begin preparing now. Get a head start and it will facilitate the process.  The process will go more smoothly, and it will ensure the organization captures the necessary information about existing leases in advance. Time and planning will help avoid common pitfalls and allow modification to any new lease contracts that are signed before the standards go into effect.

By integrating a proven lease management software system such as CoStar, the transition battle will become less intimidating. An integrated solution that allows you to see all of your lease data in a single interface and empowers you with the tools necessary to make more confident real estate decisions is more than worth the consideration. Partner with CoStar experts for support in the transition process from quickly abstract data from lease agreements to performing calculations on various future lease opportunities for better business and accounting decisions.