The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
One of the biggest changes coming to commercial real estate will have to do with accountancy. Corporations will be accounting leases as if they’re mortgages, providing more leasing options that can wind up being quite profitable in the long-term. One year leases instead of 10 year leases can allow for more rent to be charged and more opportunity for both owners and tenants. Additionally, rents, tenants, and buildings are expected to continue to grow in the coming years.
Richard Wilson: Just two questions left here, so what do you see as the number one biggest change coming to commercial real estate?
Robert Borris: Well one of the biggest changes is going to be accounting changes. The board of accountancy is announcing, and I don’t know the status of this but it will have a big impact, and that is corporations will have to account for leases as if they’re like mortgages. Where as right now, they can sign a 10 year lease and all they do is they deduct the rent every year. They don’t have to – they can footnote the fact that they have a 10 year lease and an obligation of multi millions of dollars – they’re changing that and that’s going to have an impact on the length of lease terms that companies are going to want to buy. Actually, it could provide for a very good opportunity because a corporation would then benefit most from a one year lease.
Robert: Because that’s all they have a bunch of non-obligatory renewal options.
Robert: But you can charge more rent on a one year lease, and they’ll probably pay it because it’ll be worth it to them.
Robert: And most companies don’t pick up and move very quickly. So that’s an opportunity that could present itself. A very nice one, actually. That’s going to be the biggest one. Deals are going to get bigger. Buildings are going to get bigger. Tenants are going to get bigger. That’s also what’s going to happen, that’s been happening for years now.
Richard: Sure, great.