The Leader - November/December 2008 - (Page 32)

REAL ESTATE MANAGEMENT Creating Real Estate Value: Respond Strategically to Financial Reporting Changes BY ELIZABETH KING FORSTNEGER lease stay tuned to see what we come up with." This was the advice of the Securities and Exchange Commission’s chief accountant, Conrad Hewitt in June of 2008 (a remark made as a panelist, public accounting forum held by the Financial Accounting Standards Board (FASB) and the Financial Accounting Foundation). This sentiment perpetuates the anxiety that surrounds impending changes in the accounting world stemming from discussions of morphing the US’s Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS). Currently, the two bodies are working together to tweak existing standards and opine on conﬂicting rules. Business leaders are already reacting though plans remain undeﬁned, but poised to impact the bottom line. Due to the nature of the changes, real estate executives in particular may ﬁnd the timing unfortunate during this period of market ﬂuctuation. "P While companies cannot predict market conditions in years to come, they can plan for probable change that affects both business decisions and the bottom line. The seemingly inevitable arrival of adjustments to accounting rules is best navigated by companies whose leaders understand and plan for the impact. Some changes described here will take effect at a predetermined date. Others are still under debate. All stem from the merging of US and international standards. This article examines the biggest changes ahead for owners and lessees of real estate; this year’s implementation of FASB 157 and the potential reclassiﬁcation of operating leases as capital leases. Real Estate Owners Owners may already be aware of the issuance of FASB 157, effective November 15th of this year. This pronouncement dictates that owned real estate is to be presented at fair market value on an annual basis, and the associated valuation methods be disclosed. The pronouncement emphasizes fair value as a market-based measurement, not an entity-speciﬁc measurement. Many owners currently value their real estate assets every three years, doing so in terms of its contributory value to the company, or based on historical cost and depreciation. Asset managers will need to think critically about highest and best use of land, whether that determination is acted upon or not as described in the following example. FASB 157 provides examples to describe how the change affects different asset types. Among these is an illustration of actions that follow a land acquisition in a business combination. That land is currently improved with a manufacturing facility. The current use had been presumed to be its highest and best use, but nearby sites have recently been developed as high rise condominiums. Based on surrounding development and recent zoning and other changes to facilitate that development, the reporting entity determines that the manufacturing facility site could be developed as a site for high rise condominiums. 2 0 0 8 TH E LEADE R 32 NOVEMBER / DECEMBER

Table of Contents Feed for the Digital Edition of The Leader - November/December 2008

The Leader - November/December 2008 Leadership Contents Message from the CEO Real Estate in the News Leveraging Business Geography My Work @ Bank of America Blending the Old with the New A Tool for Growth Creating Real Estate Value Nokia-Siemens Networks’ Peter Doran DTZ’s James Maddock Annual Economic Development Directory The Georgia Report Location Profile: Magdeburg, Germany Linking Corporate Real Estate to the Enterprise 3rd Quarter 2008 Adding Value in Challenging Times Australia and New York Shell’s Paul Huston Economic Development in the News A Look Ahead In our Next Issue Calendar of Seminars Index of Advertisers Chapter Learning: The Global Perspective

The Leader - November/December 2008

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