Although it has been flying under the radar for most corporate real estate executives, the impending change from the US Financial Accounting Standards Board (FASB) on accounting for leases could have major impacts on company balance sheets.

With these significant new financial reporting requirements scheduled for final adoption in 2011 and full implementation by 2013, companies need to be aware of the implications and factor them into today’s leasing decisions in order to avoid potential problems down the road.

In essence, the FASB change will require companies to recognize as an Asset their right to leased property and also to recognize as a Liability their obligation to pay rents over the course of the lease term. Instead of having flexibility as they do today to effectively choose between classifying their real estate contracts as Operating Leases or Capital Leases, these new requirements will force companies to recognize the entire multi-year obligation as Debt on their balance sheets.

Aimed at providing more transparency for previously off-balance-sheet obligations, the FASB changes will have dramatic impacts on company strategies, public perceptions and in some cases may undermine corporate financial viability.

Public companies will likely feel the immediate impacts more that private companies, however both must take the new requirements into consideration with any new lease or lease renewal transaction. For public companies, the recognition of much more debt will directly impact the perception of their stock value. For private companies, especially those looking ahead to a liquidity event such as IPO or acquisition, the recognition of additional debt can significantly impact their valuation.

For example, venture-backed companies currently enjoy the benefit of expensing their real estate lease obligations, which makes for a very “clean” balance sheet for valuation purposes. Under the new standards, with more debt on the balance sheet and higher level of transparency, an acquiring entity or IPO underwriter must consider these additional liabilities in the equation.

While these changes are not the end-of-the-world, corporate real estate directors need to work closely with CFOs and CEOs in order to make sure that lease accounting impacts and overall corporate strategies are in alignment. For example, some stable companies with strong cash positions may want to look at buying-vs.-leasing to keep the debt off their balance sheets. Or venture-backed companies may want to consider aligning the term of their lease obligations with their planned IPO or acquisition in order minimize balance sheet debt at the time of the liquidity event. Because the first few years of a long-term lease will now represent the major pain-point for debt on the balance sheet, all companies should take a closer look at these financial reporting implications during any new lease negotiation or renewal.

As always, real estate decisions will continue to represent one of the top three financial arenas for most companies (along with payroll and Cost of Sales) but these new FASB standards will significantly change how companies must recognize their real estate leasing obligations. Because how a company is perceived directly impacts how it is valued, it is vital to educate yourself now on the potential impacts of the accounting changes so that you can make the best leasing decisions today to optimize your corporate value tomorrow.