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MIND THE GAAP

WASHINGTON DC 05.08.2017

MONTGOMERY COUNTY STATE OF THE MARKET

Featuring an Interview of Marriott CEO Arne Sorenson

Arne Sorenson -- Marriott International
Mike Gill -- The State of Maryland
Barry Glassman -- Glassman Wealth Services
MIND THE GAAP
“This will impact everyone,” said Studley CFO Al Petrillo to a group of NYCREW members last night at the firm's 399 Park HQ. “There are no exemptions, there are no free passes.”
Studley's Edward Kang, Christelle Bron, and Al Petrillo
What Al (right) was talking about, along with managing directors Edward Kang and Christelle Bron, were FASB's new lease generally accepted accounting principles, which would effectively eliminate operating leases (which account for the vast majority of NYC deals) from the industry. Instead, capital leases will be recorded as an asset and liability on the balance sheet, then depreciated and amortized on an income statement. Final standards are said to come out next year, with enactment in '13. We're in a world where having something off the balance sheet is a bad thing, Al says, and this move will attempt to bring consistency of standards, consistency of reporting, and transparency of reporting.
NYCREW members with Studley's Edward Kang
They compared the impact of existing and proposed standards on the balance sheet, income statement, and cash-flow statement (see the NYCREW gals are intently studying it), and noted that in their opinion, a future of short-term leases—which many are buzzing about—is far from the truth. Whether it's a five or 10-year lease, Ed says tenants spending a lot on space want to spread the depreciation, so they're looking long term. “And looking for real estate is a hassle,” he points out. Additionally, banks and landlords want long-term leases. In NYC, tenants will likely continue to lease instead of own, but you may see some suburban tenants consider owning a single-tenant office building. Open issues include operating expenses, real estate taxes, and concessions. Don't panic, they say, but be aware and have a checklist of how these changes might affect you and how you'll address them.
Related Topics: Edward Kang