Negotiations, not to mention fierce lobbying, ensued. In March, it became clear that the boards were considering a substantial shift in the policy laid out in their first draft: namely that there would be recognition of two different types of leases: finance leases and other-than-finance leases. This was key for the industry, says Joseph J. Vella, senior managing director, Americas of Cushman & Wakefield's financial reporting practice in San Francisco.

What it could mean, he explains, is that, should the other-than-finance approach be codified in the final standard, rental income and expenses will be a straight-line record item on the income statement. However, he says, it wouldn't change the proposed recognition of assets and liabilities on the balance sheet.

Could mean. Wouldn't change. Clearly, all of this is still in the speculative stage, at least from the industry's standpoint. Additional clarity had been expected in April, until the two organizations said they needed more time. "Things are changing on a daily basis, so everything I say could be out-of-date and inaccurate the following week," Vella says.

With the final tweaks to the actual standards still to be determined, real estate firms can prepare only in the big picture. Whatever the changes bring, they will likely require more coordination among the various units of a firm, from leasing and accounting to better IT enablement. Already some firms are well positioned in that their systems can track leases from the marketing stage to the accounting stage, Vella says. "Unfortunately the majority of systems are not tightly linked to accounting, and that is what will be required."

Dodd-Frank. When it was passed last year, possibly even its framers were not completely sure of all the ways in which Dodd-Frank financial reform legislation would impact the industry. For starters, at several thousand pages, the legislation itself was mammoth. More important, though, the final shape of the legislation wasn't expected to become clear until its rules were written and put in place. That is happening now, to the dismay of many in the industry who say that some of these rules are going against the intent of the legislation.

At the end of March the Federal Deposit Insurance Corp. revealed a proposed rule that would supplement the legislation's risk-retention proposal, the so-called skin-in-the-game requirement for originators. The measure, passed unanimously by the board, would force certain transactions to be structured with a "premium capture cash reserve account."

The details haven't been fleshed out, or even finalized for that matter, but the theory behind this proposal is that this new cash reserve would hold excess interest from newly structured interest-only strips to ensure there is true 5% risk retention, explains John D'Amico, who most recently served as the interim CEO of the CRE Finance Council in New York City. The practical effect is that it would keep CMBS lenders from claiming profits up front on such transactions until all other bonds have been paid off.

"That has created much consternation among issuers," says D'Amico, who is a member of DAI's Editorial Advisory Board. "They are running analyses now to see what it would do to their profitability and the cost to borrowers."

The proposal about the interest-only strips, which some in the industry believe will be short-lived, was part of a 376-page tome dealing with the securitization rules outlined by Dodd- Frank. Also in this document was a requirement that an operating advisor be appointed who could remove a special servicer for cause. This entity would also have to be consulted on all loan workouts. Again, more consternation, this time on the part of special servicers, says D'Amico.

Another proposal would require B piece buyers to retain the interest of the B piece for the entire life of the transaction, which would naturally affect the price the buyer is willing to pay, says D'Amico. Finally, the regulations call for the creation of criteria for a qualified loan. Unfortunately, he says, "I have never seen a loan that would meet all of the criteria they have listed."

The FDIC and the Federal Reserve Bank threw out another stunner in the form of a proposed reg: a rule that would require non-financial companies to back up their derivatives positions if they were risky enough to threaten banks' positions. This rule, which will affect such companies as Caterpillar and Ford Motor Co., as well as developers that use derivatives to balance their own positions, goes specifically against the grain of Dodd- Frank, which took pains to grant exclusions to non-financial companies.

How to account for this reversal? There are many factors, says one political consultant who represents financial institutions on Capitol Hill, starting with the lobbying process itself. "You see that in any industry. If one rule seems to be out of tune from a general approach, it was usually included to favor a company or particular industry niche."

The FDIC's proposed rules have met with near universal chagrin. "If all of the measures it has proposed about CMBS are put into place, it will affect the cost of borrowing and the timing of deals," says one industry representative. The industry is resigned to seeing at least some of these measures put into place, but is gearing up to fight others. Dodd-Frank is so monumental, though, it is almost a mistake to focus exclusively on specific regulations or lobbying practices.

The spirit of the law, designed in part to prevent too-big-to-fail banks from becoming entrenched in the financial landscape, is playing a role in lenders' strategic decisions, both large and small, in turn leading to unintended consequences on the part of the legislation's framers.

Foreign banks, Barclays and Deutsche Bank to name just two, are restructuring their US operations to avoid the law's reach. Barclays has deregistered its US bank-holding company to eliminate a capital shortfall that never would have met muster under Dodd-Frank, news reports say. Deutsche Bank is contemplating a similar move.

The reform of the GSEs is also ripe for the law of unintended consequences to take hold, says Walker & Dunlop's CEO, Willy Walker(see his video, page 2). Proposals put forth by the Obama Administration and seconded by Congress suggest these agencies are entering their sunset years. This is not necessarily bad news for multifamily providers, he says. They will, in fact, benefit from the large numbers of apartment-dwellers suddenly dumped into the market because of the GSEs' demise. The private sector, in other words, has no intention of subsidizing subprime homeowners. But this shift in living patterns could well introduce an element of uncertainty that could ricochet throughout the economy.

Healthcare. Given the ongoing theme of additional regulation and ever-present uncertainty, it seems fitting, or perhaps better put, kind, to end with the one sector in the real estate industry that appears to be benefiting from stepped-up legislation. The healthcare sector has been performing well for the past several years because of longstanding demographics in the country, notes SNL Financial's Keven Lindemann. That said, the passage of the healthcare insurance law last year that created a new pool of insureds for firms is clearly providing this sector a boost.

Lindemann points to recent statistics the company reported that showed, among all REITs, the healthcare sector has traded at the largest premium to NAV for the past 12 months, with a current average premium to NAV of 30.8% as of April 7.

"That is indicative of a lot of investor interest in the sector," Lindemann says. "NAV is an estimate of underlying value of the asset relative to the current share price. If a company is trading at a significant premium it suggests that people are seeing value in the company beyond what the private market value of the assets is."

He says that this could indicate either that "there are ways for management to unlock more value in the asset or they have great growth opportunities and the value of the assets is going to increase at a faster than average rate over time."

Ironically, the one piece of regulatory surety for the real estate community may be undermined in the coming months. The Supreme Court may wind up arbitrating the healthcare legislation, which continues to be challenged in the Circuit Courts. All of this, from the accounting standards nail-biter to the Dodd-Frank sausage-making process pales in comparison to what the international finance community could visit on real estate firms: Basel III, a complex regime in which banks will be required to increase their capital reserves in the coming years. Basel III, and how it will intersect with the capital markets, is an utterly blank slate for the commercial real estate industry right now. Unfortunately.

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