The CoreNet Global Summit session on FASB lease accounting changes was standing-room only, with well over 100 professionals showing up to find out how this change will affect their businesses. The moderator, Jones Lang LaSalle’s own Kenneth Rudy, asked for a show of hands to determine how many people were familiar with the rule change, which essentially will turn operating leases into capital leases for accounting purposes.
When CoreNet and Jones Lang LaSalle surveyed CRE directors a year ago, two thirds were unfamiliar with the change, and virtually no one was engaging other stakeholders in their companies. At yesterday’s session, about one third were still unaware of the basic information and less than a third had engaged stakeholders. With release of the exposure draft containing the new rules expected in June or July, this slow movement is cause for concern. And many people in the room expressed alarm that the rule change would cause them to break financial covenants that could send their companies into bankruptcy or exacerbate the trauma in the commercial real estate market —concerns that are exaggerated, to put it mildly.
In between the extremes of panic and complete indifference to this issue lies the course I have recommended to CRE directors for several years. First, get educated. Second, take the basic steps to prepare for the change. At a minimum, that is going to mean engaging your corporate finance team and business unit leaders. At some point, the corporate treasurer is going to come to CRE looking for information. It won’t be good if the CRE is unaware of the rule change when that happens.