Real Estate Forum - September 2011

president and chief executive officer. “I went from one great company with a 100-plus year history with a very strong culture to another company with a very strong culture,” Rudin told GlobeSt.com in August in his first interview since taking his new job. He said he came to BOP to be instrumental in the transformation of Lower Manhattan and Midtown West. Among other things, that means overseeing an extensive renovation of BOP’s World Financial Center complex and the company’s planned Manhattan West development project in Midtown.

very strong culture,” Rudin and Midtown West. Among other things, that means

Fred Schmidt, Coldwell Banker Commercial >>>>>>>>>>>> Fred Schmidt was named president and COO of Coldwell Banker Commercial Affiliates LLC in February 2010. A commercial real estate veteran with more than 30 years’ industry experience, Schmidt held posts with Realogy Corp. and Coldwell Banker Commercial for seven years prior to this promotion. At Realogy, he served as senior vice president of the global client solutions group from 2008 to 2010. Schmidt joined Coldwell Banker Commercial in 2003 as vice president of business development, and two years later was promoted to senior vice president of business development and operations. In his current role, Schmidt leads a growing franchise system that has approximately 200 offices and 2,300 professionals in 20 countries worldwide, including recent key additions in the New York City and Atlanta markets. Schmidt also serves as president of ONCOR International LLC, a global referral network of more than 50 independently owned brokerage firms.

ing its 2001 merger with Charles E. Smith Residential Realty, which changed the REIT’s name to Archstone-Smith and brought its total market cap to about $9.1 billion. This growth, and subsequent acquisition was well timed, since the apartment market soon took a hit from the single-family housing boom. Today, the company has reverted to its Archstone brand but continues to grow, most recently teaming up with Allianz Real Estate and the Canada Pension Plan Investment Board on a $200 million-plus acquisition in August, and forming a development JV with CPPIB. There are even rumors that the firm, with a portfolio of 86,000 units in over 400 assets, may go public again, though Sellers has publicly said that call is not his to make.

David Simon, Simon Property Group >>>>>>>>>>>>>>>>>>

Simon Property Group has promoted David Simon through the upper echelons of leadership since 1993. He became president of the shopping center REIT that year, shortly after it went public, and held that title until 1996. He has been CEO since 1995, and in 2007 the board of directors named him chairman. In 2010, the Harvard Business Review recognized Simon, son of SPG co-founder Melvin Simon, as one of the world’s best-perform-ing CEOs, and the company has opted to keep him at the helm. According to a regulatory filing this past July, Simon and SPG signed an employment agreement that extends his term as chief executive through July 2019. The company’s latest quarterly results suggest why: amid a still-chal-lenged environment for retail, a 40-basis point improvement in occupancy year over year, a 9.4% increase in sales per square foot and a 2.8% gain in average rent per square foot.

R. Scot Sellers, Archstone >>>>>>>>> There’s no better testament to what R. Scot Sellers has achieved at the helm of apartment firm Archstone than the 2007 acquisition of the company by a joint venture of Tishman Speyer Properties and Lehman Brothers Holdings Inc. At the time, the $22.2-billion deal—green-lighted by 99% of shareholders, thanks to a 22.7% premium over share price—was the largest apartment privatiza-tion ever done. Not bad for the world’s sec-ond-largest residential REIT. That the buyers decided to keep Sellers on to lead the newly privatized Archstone is further testament to his aptitude; in his 30-year career Sellers has handled the development, acquisition and operation of more than $40 billion of communities. He spearheaded Denver-based Archstone’s massive portfolio repositioning plan of shedding billion of dollars worth of non-core assets and using the proceeds to pay down debt and expand in core markets. Sellers, named as a 2005 Entrepreneur of the Year by Ernst & Young, also oversaw the firm’s monumental growth over the years, includ-

Contained in the proposed lease accounting standards released by the Federal Accounting Standards Board and the London-based International Accounting Standards Board is what Ernst & Young called “a fundamental change” for the commercial real estate industry. That change will mean all property and equipment leases will now be put on corporate balance sheets, which could create an enormous impact on financial statements.

This new model eliminates the requirement to classify a lease as either operating or finance. Instead, all leases will now be recorded on balances sheets by lessees, who will be required to list both a “right of use” asset and a “future lease payment” liability.

Real estate companies that report under US GAAP guidelines will be required to adopt either the “performance obligation approach” or the “derecognition” approach. With the former, the landlord records a lease receivable and an equivalent liability representing the lessee’s use of the underlying property; under derecognition, the owner has to split its investment property between a lease receivable asset and the residual value of the property.

Other areas that could be affected by the new lease accounting rules include earnings measures and debt covenants. Given the new standards’ possible adverse impact on debt covenants, E&Y predicts that companies will have to negotiate amendments to lease agreements to consider the new leasing model, and may hesitate to approach lenders with such a request in the current credit environment. And at the RealShare Net Lease conference in New York City this past April, David Kessler, office managing principal at the Reznick Group in Bethesda MD, said the balance sheet changes could bring additional liabilities for lessees, negative impacts for debt/equity ratios and differed tax impacts. He advised that all companies review their balance sheets, debt covenants, leases and income statement impact now.