I am not an accountant, and I did not stay at a Holiday Inn Express last night, but I want to highlight how some proposed changes to the FASB (Financial Accounting Standards Board) regulations could affect the commercial leasing market.
The proposed changes, if passed, would affect the way tenants reflect their lease obligations in accounting statements. From my understanding, instead of accounting for payments as costs, the future payment obligations under a lease would be considered liabilities of the tenant. Thus, a five-year lease becomes a five-year liability of the company, instead of a monthly expense. Furthermore, it appears that option terms which are likely to be exercised will only extend the liability.
The net effect could be that tenants want to avoid extended liabilities that will clog their balance sheet and reduce earnings. Instead, shorter leases could become more common, and thus result in higher tenant turn over.
I will defer any further analysis to an article I recently discovered on the issue by the Vice President of Development for Opus Development Corporation. You can find the article here.
