Before You Move Into an Empty Building, Know This

Office buildings with vacancies often have distorted expense pass-throughs.  This brief case study outlines why and how this can become an issue for tenants.

In 2009, ABC Company moves into a building that is only half occupied.  ABC signs a 10-year base year lease, where it agrees to pay for increases in building expenses over time, with 2009 serving as its base year.  The lease states that as building expenses rise from year to year, the landlord is to compare them to the expenses from 2009, and send ABC a bill for its share of the difference.

Over the next two years, the building starts to fill up as the landlord periodically leases out the remainder of the vacant space.  By 2011, the building is 100% full.  Everyone is happy, and everything feels right for each tenant, on every floor.

But something is wrong. For some reason in 2011, ABC receives a bill that is 10 times greater than expected! 

How Did This Happen?

The landlord had .....

Marc Betesh Comments on FASB Changes

Marc Betesh Comments on FASB Changes

Over the past few years, FASB and the IASB have been determining a way to best treat leases so that investors and others who use financial statements can get an accurate picture of an entity’s financial health. The planned changes to lease accounting have placed a renewed importance on a company’s ability to manage and report on their real estate. 

Video: FASB Lease Accounting Changes Set to Impact Public and Private Companies

Don’t miss the discussion between Andrew Zezas of SIOR NJ and Marc Betesh of KBA Lease Services.  Together they outline the upcoming changes to lease accounting under GAAP and their potential impact on commercial real estate, developers and occupants. 

Topics Include

FASB and IASB:  Who Are They and Why Are They Important?
Upcoming Changes and Reasons behind the Initiative
Treating a Lease like an Asset
The Effect of Draft Delays, Roundtables and Comment Letters
Renewal Options and Inaccurate Projections
Evaluating the Likelihood of Exercising Options and Economic Incentives to Renew
What Tenants Should Do Today

International Facility Management Association (IFMA) and KBA Host Joint Webinar

Tomorrow’s webinar will explore the underlying theory behind the proposed FASB changes.  IFMA, a professional association for facility management professionals,  and KBA Lease Services, a nationwide lease auditing firm, will outline the potential ramifications and offer advice as to best prepare for the impact.

Topics Include:

  1. Why the Changes Were Proposed
  2. What Will Change
  3. Impact on Lease vs. Buy Decisions
  4. Treatment of Gross vs. Net Leases
  5. The Most Current Updates/Deliberations/Alterations Made to the Original Exposure Draft
  6. How to Start Preparing Now

Last August, the Financial Accounting Standards Board (FASB) sent shockwaves through the commercial real estate world when they proposed significant changes to how leases must be recorded in a company’s financial statements.  Although the Boards continue to deliberate, every major company (any company that follows GAAP) will be impacted by the upcoming changes.  At a minimum, substantial attention and manpower will be required to comply with the new rules.  But the changes could also impact such decisions as whether to lease or buy or how buildings will be serviced.