David Biehl: Where are we now, where are we headed and where are the opportunities?

While there are many signs that the economy is recovering, there are just as many signs that the commercial real estate market isn't rebounding just yet. Vacancy rates for commercial properties continue to rise, and asking rents continue to fall. As an example, I have recently concluded several leasing transactions at rental rates 25% to 40% below the rental rates that were being paid in 2008. In addition, the Financial Accounting Standards Board (also known as FASB) proposed certain changes to the accounting rules governing leases that may have a very real and chilling effect on the commercial leasing market. Specifically, FASB proposed expanding the definition of "capital leases" to include many commercial leases that are classified as "operating leases" today. This is significant since the total financial obligations (i.e, all future rent payments) under "capital leases" must be included as a liability on a company's balance sheet, whereas the financial obligations under "operating leases" do not. In light of this potential, many businesses may shy away from long-term leases in favor of real estate acquisitions. So while there are opportunities for tenants to secure favorable leases today, businesses will have to carefully consider whether these savings justify the potential adverse accounting impact tied to those leases if the new FASB rules are implemented. David Biehl is a partner/director of Garfunkel Wild, P.C., is Chair of the firm's Real Estate Group and a member of the firm's Finance, Business and Health Care Practice Groups, Great Neck, NY