Thought Leadership
Lease Accounting Made Clear: IFRS vs. US GAAP for Sellers Considering a Sale-leaseback
Lease accounting has never been simple, but the arrival of ASC 842 in the US and IFRS 16 internationally has made it even more challenging. Both standards bring leases onto the balance sheet, yet they take very different approaches. If you only report under one standard, the rules are relatively straightforward. But for many European and multinational companies that report under both, the differences can create extra complexity. And for companies consider a sale-leaseback this matters – because you’re moving from being an owner (with property recorded as PP&E) to a lessee (with right-of-use assets and lease liabilities). Here’s a look at how IFRS and US GAAP diverge, and what that means in practice. One set of rules vs. two IFRS 16 uses one set of rules for all leases – they’re recorded on the balance sheet as a right-of-use asset and a lease liability, and expenses ares split between interest and amortization. Under US GAAP (ASC 842), all leases also go on the balance sheet the same way, but the difference shows up on the income statement. Finance leases follow the IFRS approach (interest and amortization), while operating leases are recorded as a single, straight-line rent expense. Importantly, classification under US GAAP depends on the terms of the lease contract (e.g. does ownership transfer, does the lessee have a bargain purchase option, does the term cover most of the asset’s usable life, and does the present value of the lease payments equal or exceed substantially all of the fair value of the asset). How changing lease payments are handled Another key difference is how variable lease payments are treated. Under IFRS, if lease payments go up or down because they are tied to something like inflation (i.e. CPI), the lease liability on the balance sheet (essentially what a company still owes for future lease payments) is updated to reflect that change. Under US GAAP, however, the balance sheet stays the same and the changes flow through to the income statement as expenses as they occur. Short-term exceptions Both frameworks make an exception for very short-term leases (under 12 months), allowing them off the balance sheet. Why It Matters These differences affect how your financials look, how ratios move and how investors view your business. For companies that have to report under both standards, it’s especially important to understand the nuances. For companies doing a sale-leaseback, the accounting may differ, but the underlying economics don’t. What changes is how the results are presented. That’s why it’s important to work with an experienced, international partner like W. P. Carey who can understand your goals and help you navigate both frameworks Want to dive deeper? Check out our full breakdown of IFRS vs. US GAAP lease accounting. This article is for informational purposes only and should not be considered accounting advice. Please consult your own advisor regarding your specific situation.
Commercial Lease Types Explained: Find the Best Lease for Your Business
People who are relatively new to leasing commercial real estate often mistakenly think it is similar to a residential lease on a house or apartment. In fact, commercial leases are quite different and often much more complicated. There are different commercial real estate lease types, each of which suits the needs of different businesses and landlords. It's vital to understand what kind of lease you are being offered for your commercial property so you can ensure it’s the right lease for your business. Here are the various lease types and how they work. Gross Lease A gross lease is one where you pay a flat rental fee that includes everything. This means taxes, insurance, utilities and maintenance costs are all included in the lease. You might compare this with the rare residential lease that includes utilities and possibly cable. Gross leases work well if you are renting office space or retail space in a mall. The lease is calculated to include your share of all of the common operating costs of the space. In other words, your rent will include a prorated share of real estate tax, utilities, building insurance and janitorial costs. This allows landlords to avoid having to meter individual spaces. Gross leases are typically calculated by analysis or past data, but you can often negotiate specific terms of the lease. For example, the standard lease on an office building might include your share of janitorial services in common areas and other common area maintenance, but it can be to your benefit to negotiate a lease that also includes janitorial services inside the office. This saves money because you are paying for extra time from a company that is already coming in vs. hiring a new company altogether. Modified Gross Lease This is a lease where you might have negotiated not to pay for certain things, such as electric utility. This is also very common for commercial spaces with multiple tenants. Full-Service Lease This is a lease where you only have to worry about your rent. Everything else is handled by the landlord. This is often a lot more expensive than other lease types, but it can be easier to budget as you don't have to worry about, for example, seasonal increases in utility bills. It is also called a service gross lease. Choosing a gross lease may seem like the simpler option, but you will pay a bigger rent check every month compared to other lease types. You also need to trust that the landlord will keep up their end of the bargain and ensure that everything is paid for, and maintenance gets done when needed. Net Lease A net lease, on the other hand, is one which works from the base assumption that the tenant will be taking on responsibility for some or all of the costs of running and maintaining the building. This is more common with single-tenant buildings such as warehouses or restaurants, although can be executed in multi-tenant buildings as well. A pure net lease makes you responsible for all the costs related to a property. The rent is thus lower, and although you are responsible for other costs you can typically keep operating costs down by exploring sustainable retrofit projects like a solar panel installation if your facility does not already have. One advantage beyond the benefit of a lower base rent of a net lease is that you often have more control over the property and thereby maintain a sense of ownership. You can, for example, freely choose your own utility providers and maintenance workers instead of being stuck with the landlord's preferred vendor. While your operating costs may be less predictable compared to a gross lease, net leases tend to be long-term in nature so the uncertainty of operating costs is offset by the predictability in rental fees. Here are the three major types of net leases: Single-Net Lease: In a single-net lease, the tenant pays property tax and other taxes and rent while the landlord covers everything else. Also called an N lease. Double-Net Lease: In a double-net lease, the tenant pays taxes, rent and property insurance while the landlord covers everything else. Also called an NN lease. Triple-Net Lease: In a triple-net lease, the tenant pays all costs related to property management including taxes, rent, property insurance, maintenance and other costs. Also called an NNN lease. This is the most common type of net lease. Percentage Lease A percentage lease is a lease where instead of paying a fixed rent, you pay your landlord a percentage of your sales. This includes a certain amount of base rent, and also a negotiated break-even point, which might be a fixed amount or the base rent divided by the agreed percentage. Percentage leases can sometimes be beneficial to both parties for retail space, especially in a mall or shopping center. The terms can be net or gross, with the amount of the base rent set according to what the landlord is responsible for in terms of operating costs. Operating versus Capital Lease Most commercial real estate leases are operating leases, meaning you do not get ownership of the property after the lease is done. In many cases you will be able to renew and renegotiate the lease. With a capital lease, the property is treated as a purchase for accounting purposes, and you may gain ownership at the end of the lease. Capital leases have fairly strict requirements and are relatively rare in commercial real estate. They are similar to finance leases, where you automatically gain ownership at the end of the lease term. Ground Lease A ground lease is when you own the building, but another party owns the land it is located on. Ground leases tend to be very long, averaging 50 to 99 years (compared to the 10 to 30 year lease term of net leases and the typically even shorter gross leases). While ground leases can offer you full control over the building, with some limitations, you are adding another stakeholder with other interests and opinions. It can also be harder to get out of a ground lease if you need to relocate your business. So, what is the best type of commercial lease agreement? The answer is that it depends on your business and the kind of space you are leasing. W. P. Carey is a long-term owner of real estate focused on triple-net leases. We primarily own single-tenant industrial properties that tend to be critical to business operations and therefore unlikely to be vacated for many years. This type of lease makes the most sense for these businesses as it gives the tenant full operational control over the property and is most similar to ownership. The added benefit of selling to W. P. Carey is that we are a long-term holder of real estate and do not look to flip our assets. We have a vested interest in maintaining the quality of our portfolio and pride ourselves in serving as a partner to our tenants should you have additional real estate or capital needs past the point of initial sale. That said, with over 50 years of experience providing customized solutions to our sellers, W. P. Carey can work with you on a lease type that is best for you and your business. Want to learn more? Contact & start the conversation with W. P. Carey today!
From Property to Partnership
At W. P. Carey, underwriting is the cornerstone of our investment strategy. Whether we’re evaluating a mission-critical distribution center, a top-producing grocery store, a well-located data center or a newly developed healthcare facility, our process is grounded in four essential pillars: The creditworthiness of the tenant The criticality of the asset The quality of the real estate The structure and pricing of the transaction Together, these criteria help us identify assets that deliver durable, long-term value to our shareholders. Creditworthiness of the tenant We begin with a deep dive into the tenant’s financial health. Our team evaluates balance sheets, income statements, liquidity levels, leverage ratios and access to capital. We also look beyond the numbers – analyzing the company’s industry position, growth trajectory and ability to withstand economic cycles. As long-term owners, our ideal tenant is one that will remain operational – and ideally continue to grow – for many years to come. Criticality of the asset Not all real estate is created equal. We focus on acquiring assets that are essential to a tenant’s operations – whether that’s a key distribution center, a top-performing retail location or a specialized manufacturing facility. Our goal is to understand how integral the property is to the tenant’s revenue generation, product development and supply chain. Assets that are truly critical are the ones that tenants are most likely to remain in – and invest in – over time. Quality of the real estate In addition to tenant credit and building criticality, we assess the real estate itself. This includes local market analysis, property condition assessments, third-party valuations, replacement cost estimates as well as understanding downside scenarios and re-leasing risk. Our goal is to ensure that the real estate stands on its own as a high-quality, income-generating asset. Transaction structure and pricing We structure each transaction to support both tenant operations and investor expectations. That often means negotiating long-term leases (typically 10-30 years) with built-in rent escalations and appropriate protections if needed – such as security deposits or letters of credit. Our pricing reflects both the fundamentals of the asset and the strength of the tenant, always with the goal of striking the right risk-return balance. A proven approach Throughout our more than 50-year history, this disciplined underwriting approach has enabled us to navigate complexity and build a portfolio of 1,600+ high-quality, operationally critical assets. Regardless of property type, these four pillars remain constant – highlighting that execution rooted in underwriting discipline is what ultimately drives long-term value. Interested in selling your real estate? Contact us today!
Five Benefits of Sale-leasebacks Over Traditional Debt Financing
In today’s environment, having access to capital is crucial in order to maintain ongoing operations and invest in growth. However, traditional debt financing is becoming less attractive for companies in light of refinancing risks and the potential for balloon payments. As a result, some CFOs are investigating alternative sources of capital. For companies that own real estate, one method worth exploring is the sale-leaseback – where a company sells its real estate to an investor for cash and simultaneously enters into a long-term lease. For companies considering a sale-leaseback, here are five key benefits of this alternative capital solution: 1. Convert an illiquid asset into working capital The primary benefit of a sale-leaseback is the ability to immediately convert an illiquid asset into liquid capital to meet both short- and long-term needs, such as paying off debt, purchasing new equipment or investing in growth initiatives. From an accounting perspective, sale-leasebacks can also help boost a company’s balance sheet by putting them in a better cash position and improving their debt-to-equity ratio, enabling them to secure more attractive debt financing in the future should they need it. 2. Unlock 100% of the property's value Sale-leasebacks enable companies to extract 100% fair market value for their real estate, compared to about 80% or less for a mortgage loan. With real estate valuations on the rise, sale-leasebacks will likely yield more cash than traditional financing, enabling corporate sellers to maximize proceeds and invest more capital back into their business. 3. Benefit from long-term financing With traditional debt, companies typically have to refinance after three, five or ten years which can create interest rate and risk exposure to future economic downturns. Through sale-leasebacks, sellers sign a long-term lease – often 20 to 30 years – and lock in an attractive long-term rental rate that creates security and predictability for a company. The ability to lock in an attractive long-term rental rate today is especially advantageous in a volatile interest rate environment. 4. Maintain operational control and flexibility Compared to other types of financing, sale-leasebacks offer sellers more control over the structure and terms of the deal. Sale-leaseback financing typically does not include restrictive debt covenants or balloon payments and can include flexibility for future growth, such as capital for an expansion. When structured as a triple-net lease, the seller maintains full operational control of the property, avoiding disruption to the day-to-day operation of the business. 5. Gain a long-term capital partner One of the most overlooked benefits of a sale-leaseback is the potential to gain a long-term partner with the capital to support future real estate needs including, expansions, build-to-suits of new commercial properties, renovations, green energy installations and more. Long-term real estate investors like W. P. Carey are committed to owning the property for the duration of the lease and beyond, and are willing to invest capital into the building well after the lease is signed to ensure the property is meeting the tenant’s long-term needs.
The Outlook for Industrial
The industrial real estate sector continues to stand out as a resilient and adaptive asset class, even amid economic uncertainty and shifting global dynamics. As we move through 2025, several dominant trends are shaping the trajectory of the market—from a fundamental shift in global supply chains to rising sustainability expectations, technological advancements and recalibration of capital strategies. Here’s a look at what’s driving the market: Onshoring and Supply Chain Reconfiguration The reshoring of manufacturing and logistics operations is no longer a speculative trend—it’s a structural shift. Spurred by pandemic-era supply chain disruptions and ongoing tariff concerns, companies are doubling down on operational resilience. This has led to a surge in demand for modern industrial space in inland and secondary markets, particularly near major highway corridors and intermodal hubs. This shift is putting pressure on developers to deliver new inventory quickly, even as construction costs and permitting timelines remain elevated. In particular, industrial locations in non-coastal metros are seeing increased activity as firms diversify away from traditional port-adjacent markets. Demand for Sustainable Real Estate Sustainability is no longer a “nice to have”—it’s a core tenant demand. Industrial occupiers are increasingly seeking energy-efficient, environmentally responsible facilities that align with their business goals and lower operational costs. This includes buildings equipped with solar-ready rooftops, LED lighting, EV charging infrastructure and LEED certifications. The push for greener buildings is also being driven by investors, who are factoring sustainability into underwriting and long-term asset value. Sustainable assets typically observe higher value in the market and are likely to lease up faster. Advancements in Technology From AI-enabled automation to smart building systems and robotics, technology is revolutionizing industrial and warehouse properties. In fact, more than a quarter of U.S. warehouse inventory is expected to be automated by 2027. Industrial occupiers leverage automation to create a more efficient process for moving products through their facilities, speeding up order fulfillment and improving inventory management. Properties equipped with automation and robust digital infrastructure are also typically viewed as “future proof,” making them more attractive to investors over the long term. Capital Markets and the Rise of Sale-Leasebacks Tariff concerns, economic volatility and tightened liquidity are prompting many corporate occupiers to turn toward alternative sources of capital, such as sale-leasebacks. This trend is especially pronounced in the industrial sector due to the strong investment profiles of these assets. The primary benefit of a sale-leaseback is the ability to immediately convert an illiquid real estate asset into liquid capital to meet both short- and long-term needs. Sale-leasebacks can also help boost a company’s balance sheet by putting them in a better cash position and improving their debt-to-equity ratio, enabling them to secure more attractive debt financing in the future should they need it. The Future is Bright Despite short-term headwinds such as tariffs and macroeconomic uncertainty, the industrial real estate market in 2025 is defined by transformation and opportunity. Onshoring is redrawing the logistics map, sustainability is reshaping development, technology is boosting efficiency and output, and capital markets are evolving to meet new financial realities. For stakeholders across the supply chain—from developers and investors to tenants and brokers—understanding these trends, and opportunities, is essential for navigating the road ahead.
ICSC Las Vegas Preview
ICSC Las Vegas, one of the largest commercial real estate gatherings, will again convene the industry’s leading professionals and retailers next week. Over 30,000 attendees will gather for networking, deal-making and insights into how the retail real estate industry will fare amid a volatile and uncertain economic environment. Tariffs, shifts in consumer sentiment and sale-leaseback opportunities will be among the biggest topics discussed at the conference. Outlined below is an overview of each. Tariffs add pressure and uncertainty for retailers Uncertainty surrounding tariffs is expected to have a substantial impact on the retail real estate industry. The National Retail Federation announced it expects the growth of U.S. retail sales to slow down this year due to consumer anxiety and inflation, with an outsized impact on smaller retailers and certain industries including textiles and electronics. While the long-term impact of tariff policies is unclear, retailers ultimately will have to determine how much of the additional costs they can absorb versus passing on to consumers. These decisions could have significant impacts on retailers’ balance sheets and ability to remain operational, affecting overall investment in the sector. Consumer sentiment shifts will impact investor demand Shifting consumer preferences continue to present both opportunities and challenges for retailers. Uncertainty surrounding the future of the economy has made consumers more budget conscious and focused on necessities. According to the U.S. Bureau of Economic Analysis, essential goods account for 65% of consumer spending. As a result, retailers will likely continue to show interest in grocery-anchored shopping centers, which continue to remain among the best-performing retail property types. E-commerce also continues to redefine retail. As more consumers shift their spending online, retailers like Macy’s are consolidating locations and shrinking their footprints. For investors seeking stability, this means targeting markets with strong population and job growth—where retail assets are most likely to perform well over the long term. Sale-leasebacks remain a viable financing option Despite economic uncertainty, the retail sale-leaseback market continues to grow—thanks to its clear advantages over traditional debt. By unlocking the full market value of their real estate, retailers can reinvest proceeds into their core business and drive stronger returns. Sale-leasebacks also provide long-term capital with no refinancing risk and typically without the restrictive debt covenants or balloon payments that come with conventional financing. In today’s climate, where liquidity and balance sheet flexibility are paramount, that kind of stability is more valuable than ever.
MIPIM 2025: Is the European Real Estate Market on the Rise?
The annual real estate gathering in Cannes, MIPIM 2025, is set to kick off next week. As in previous years, more than 20,000 delegates will gather to discuss both the opportunities and challenges facing the European real estate industry. While concerns about the market remain—including geopolitical tensions, inflation and future monetary policy decisions—investors have entered the year with a sense of cautious optimism. As real estate professionals gear up for an insightful conference, here are the key questions they will be looking to address. Will the European deal environment improve in 2025? 2024 was a year of transition for the real estate industry, with inflation gradually aligning with target levels and interest rates reaching their peak. In the latter half of the year, central banks began to lower interest rates, albeit slower—and in smaller increments—than some expected. Despite analysts projecting only modest European economic growth in 2025, the real estate investment market stands poised for a gradual recovery. Market participants have largely come to the realization that rates will remain higher for longer, bringing some stability to transaction markets. This has further narrowed the bid-ask spread as buyers and sellers align on pricing. Furthermore, lower cost of capital will be accretive to returns for some investors and support increased investment volumes. As a result, we expect more robust investment activity in 2025. What’s the outlook for the European sale-leaseback market? Even with interest rates declining, sale-leasebacks will continue to be an attractive solution for companies looking to boost cash flow. First and foremost, a sale-leaseback frees up capital tied up in illiquid real estate, allowing for greater financial resilience and flexibility without disrupting operations. Companies that pursue a sale-leaseback also benefit from predictable rental payments, making these deals a lower-risk alternative to volatile investments like the bond market. This combination of predictability and adaptability make sale-leasebacks a practical capital solution for companies with real estate assets. In addition, analysts expect the M&A market to rebound in 2025 as sponsor activity increases, regulatory and monetary dynamics normalize, and corporates continue to streamline and simplify their portfolios. When M&A activity increases, there is often an uptick in sale-leaseback opportunities, as private equity firms look to leverage sale-leaseback financing as part of the capital stack for new acquisitions or to support portfolio company growth. How will ESG reporting requirements impact the European real estate market? Sustainability is no longer “just a buzzword” in European real estate strategies. Investor demands, tenant preferences and regulatory requirements are driving companies to prioritize energy efficiency and carbon reduction. With the EU setting ambitious targets for carbon neutrality, businesses that own real estate must find ways to fund necessary upgrades. What some may not realize is that sale-leasebacks offer a great solution, allowing companies to unlock the value of owned real estate to finance energy efficiency upgrades, solar installations and other sustainability-driven improvements. This not only ensures compliance with evolving regulations but also helps reduce their carbon footprint—all while maintaining full operational control of their facility.
The Ins and Outs of Build-to-Suits
What is a build-to-suit? A build-to-suit is a real estate solution where a company secures a custom-built facility without the upfront capital investment. In a build-to-suit, a developer or investor funds and manages the construction of a new facility or expansion of an existing one to meet the specifications of a prospective or existing tenant. Upon completion, the company enters into a long-term lease, similar to a sale-leaseback. For companies in need of a new, purpose-built facility, a build-to-suit is an efficient and capital-saving alternative to buying or retrofitting an existing building. What are the key benefits of a build-to-suit? Custom-built facility in the company’s preferred location No upfront capital required, enabling the company to preserve capital for business growth Operational control of the facility post construction Potential for future expansions, renovations or energy retrofits through an investor partnership Who should consider a build-to-suit? Build-to-suits are best suited for companies that: Have specialized layouts, equipment or other design requirements Prefer a new property instead of retrofitting an older building Want to preserve capital rather than tie up funds in real estate development Can commit to a long-term lease (typically 10-30 years) How does the build-to-suit process work? Companies can pursue a build-to-suit through three main approaches: Developer-led build-to-suit: Based on the building specifications, a tenant will hire a commercial developer. The developer will take on the responsibilities (and risk) of land acquisition and building construction. Often, they will work with an investor, like W. P. Carey, as a capital partner to either finance the construction or acquire the building upon completion. The tenant will then lease the property, typically on a long-term basis, from the owner. Reverse build-to-suit / sale-leaseback: In this scenario, the tenant takes on the initial responsibilities of land acquisition, financing and hiring a general contractor for construction. Upon completion, an investor like W. P. Carey acquires the building. This allows the tenant to recoup the acquisition cost and reinvest that capital into their business. Investor-led build-to-suit: With this option, a tenant can bypass the developer and work directly with an investor like W. P. Carey that offers in-house project management services. The investor would work hand-in-hand with the tenant on site selection, land acquisition, design and construction, delivering a building that meets the tenant’s unique needs with no upfront capital required. The investor would own the building and lease it to the tenant on a long-term basis upon completion. How long does a build-to-suit take? Build-to-suits can take anywhere from 12-36 months depending on the size, location, permitting and other specifications. Rent payments typically do not begin until the building is substantially complete and operational. The lease term of a build-to-suit property is also usually longer than those of a typical commercial lease, ranging anywhere from 10-30 years. Conclusion: Is a build-to-suit right for your business? While build-to-suits may seem intimidating for companies who have never pursued one, they are a great solution for custom-built real estate with little to no upfront capital involved. W. P. Carey has extensive experience working with tenants and developers to structure customized build-to-suit financing programs that meet their specific needs – whether it be traditional construction funding, financing upon completion or a full scope of in-house project management services. Considering a custom-built property for your company? Reach out to our team today!
Will the Net Lease Market Thrive in 2025?
The net lease industry has faced significant challenges in recent years, grappling with widespread economic uncertainty, soaring inflation and elevated interest rates leading to muted growth. However, a turning point came in the second half of 2024, when the Federal Reserve began cutting interest rates, ushering in lower cost debt and injecting some optimism into the market. While most industry experts believe net lease is poised for an upswing in 2025, the extent of the recovery remains in question. As the industry gears up to “thrive in ‘25”, here are three predictions for the year ahead. Transaction volume will likely increase, but uncertainty around interest rates will remain After three rate cuts by the Federal Reserve last year, real estate investors have gained more confidence in the market, signaling the beginning of a turnaround for transaction volume. Colliers latest outlook forecasts a 25-33% growth in aggregate volume in 2025, driven by a strong economy, improving fundamentals and growing demand for key asset classes. The bid-ask spread between buyers and sellers will also continue to narrow in 2025, supporting more robust investment activity. However, the predicted boost in transaction volume is largely tied to the future of interest rates which is uncertain. The timing and pace of further rate decisions will depend on many factors, including the impact of the incoming administration’s policies – mainly surrounding tariffs and immigration – on inflation. Net lease investors will explore new property types as technology and innovation drive trends Shifting economic factors and trends will also likely lead to a change in where net lease investors will look to allocate their capital. One of the fastest growing sectors over the past year has been data centers, which have seen a huge uptick in demand because of growing digital infrastructure needs and the advent of artificial intelligence. The average vacancy rate among primary North American data center markets in 2024 hit a record low of 2.8%, according to CBRE. The firm also forecasts the average preleasing rate for data centers to rise to 90% or more in 2025. Another sector to watch is healthcare, with an aging population, growing healthcare spending and new technologies supporting increased investor demand. In particular, medical outpatient buildings are well-positioned to benefit from these trends, in addition to shifting consumer preferences for accessing healthcare in more convenient locations. Industrial and retail will remain steady as positive tailwinds support demand Despite new sectors potentially drawing investor interest, the net lease sector will remain underpinned by two of its core property types – industrial and retail. Driven by e-commerce needs, warehouses and other industrial real estate properties are still in demand. In Q3 2024, industrial vacancy rates dipped slightly to 6.7%, according to Moody’s CRE. Furthermore, changes in trade policy will likely boost demand for industrial facilities near the U.S.-Mexico border – bolstering markets such as San Antonio, Austin and Dallas/Fort Worth. Retail enters the new year with the lowest vacancy rate of any commercial real estate sector and will remain steady throughout 2025. Demand for retail continues to be primarily driven by location – with assets in densely populated areas garnering the most investor interest. Increased consumer spending as a result of easing inflation will also be a positive tailwind for retail growth in 2025.