Thought Leadership | AREA Real Estate Advisors - Part 2

Trend Alert: Apartment Living Isn’t Just for Millennials. Their Parents are Moving In.

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By Grant Kollman – Vice President, Director of Multi-Family

If one thing has become increasingly clear to me in recent months, it’s that millennials and baby boomers have quite a few things in common.

Both generational sets are renting apartments in higher numbers and for longer duration than ever before. Whether starting a career or empty nesting, both are seeking a lifestyle that offers convenience, and community in Kansas City and across the country.

In fact, a recent cnbc.com article supports this saying that from 2009 to 2015, the number of renters 55 and up increased by 28 percent, while those 34 or younger only increased 3 percent. The same report said that more than 5 million baby boomers across the nation are expected to rent their next home by 2020.

So while renting was previously considered to be a stepping stone to home-ownership; in terms of investment, commercial property owners should be prepared to answer the needs of America’s two largest generations. What are those needs? Amenities, including cost savings, flexibility, location, and maintenance-free living.

For Millennials in the process of building their careers, the ability to relocate is a significant factor. We are seeing that if they are in a financial position to purchase a home, they may rent to have more flexibility to take advantage of new job opportunities or transplant themselves to experience a different city.

Likewise, empty nesters are ready to give up home maintenance tasks, including yard work and repair, so renting can be an appealing solution. If something goes wrong, all they have to do is pick up the phone, and the property manager will take care of it. Young professionals who don’t have the time or desire to address these issues are also looking to have a landlord to handle their leaky pipes or broken fridge.

Shared amenities are also high on the list of things both millennials, and boomers are looking for. From movie theaters to gyms, it seems both groups are enticed by more than the square footage of their potential apartments.

In Kansas City and beyond, this trend shows no sign of slowing down. These two broad groups will continue to value the wants and needs that that will allow them the mobility and flexibility to keep moving.

Four Things Businesses Need to Know about the New Leasing Accounting Standards

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By Brent Peterson – Vice President, Director of Industrial Brokerage

As a former public accountant with one of the big six accounting firms, I’ve been paying close attention to the 2016 Financial Accounting Standards Board (FASB) Accounting Standards Update that will ultimately change the way all leases are accounted for.

If you’re thinking, “We just have a small office lease, it won’t be a big deal to us,” you could be in for a bit of a surprise.

The FASB issued new lease standards will impact every business that rents space and operational equipment. Public companies were affected for fiscal years beginning after December 15, 2018, and privately held companies will be affected for fiscal years beginning after December 15, 2019.

Heather Winiarski, shareholder at Mayer Hoffman McCann P.C., who specializes in lease accounting, recently told me; “The most significant change in FASB’s new leasing standard is the requirement of operating leases to have a lease liability recorded on the balance sheet at the present value of future lease payments. These potentially substantial assets and liabilities, once only disclosed in the footnotes, will now be placed directly on the balance sheet.”

Ok, why is this important, and what do you need to know?

  • Start Early. Many publicly held companies have learned the hard way that the process can be tedious and time-consuming.
  • All leasing arrangements will need to be recognized on the balance sheet as a lease asset and a lease liability. It’s especially important for businesses to understand how these changes will affect other agreements and bank covenants.
  • Business owners need to have a good grasp on what their population of leases is, which will now include previously unidentified leases such as copiers, computers and the like. Under the new regulations, if you don’t identify leases, you will now be missing a liability from the balance sheet.
  • Once you’ve identified your total organizational and operational lease population, you have to track it. Excel might not cut it, especially in year one. Your companies’ paperwork tracking leases may multiply exponentially, in fact, some companies may need to keep multiple sets of books.  Lease tracking tools are popping up online, but when in doubt, it’s best to discuss with an accountant.

What does this mean for the future? Some of the clients I have talked with have indicated that the change in accounting for leases might have some impact on the tax benefits of leasing versus buying; however, most at this time are not planning to make any changes in company real estate strategy.