Indeed, while the finalized details will be long in coming, the bottom line of the new rule is already obvious. "The new method of accounting for bad loans proposed by the IASB and FASB will require banks to write down a loan if they believe a default is likely to occur," explains Jeff rey Rogers, president and COO of Integra Realty Resources in Manhattan. "This will require banks to make judgment on events that may or may not occur." Moreover, he continues, the potential payment default may speak more to the borrower than the assets.

From there, however, opinions diverge as to what the fallout will be. Unfortunately for investors eagerly lining up to acquire souring and troubled real estate loans and properties on banks' balance sheets, this still-gray area will be key to their plans.

Rogers, for example, does not believe the new practice will increase transparency or cause significantly more loans to be transferred to and out of special servicing. Yes, he says, more loans are in fact moving out, but that is more a factor of the market and not this rule change. "The banks have been working through this process for a few years now and are better at moving impaired assets through," he says. "For example, in 2009 the banks moved just $9 billion out of special servicing. In 2010, they moved $45 billion. They will move significantly more in 2011."

Then there is the view typified by Andrew Raines, a partner with Raines Feldman LLP in Beverly Hills, CA. Bottom line for commercial real estate borrowers, as well as investors seeking distressed assets to acquire, banks will be harsher in their assessment of a wavering property. "They won't be able to use the rules as a justification for waiting to write down a loss that they know or assume to be imminent," he says. "They will write it down, which will affect their balance sheet and thus they will be more willing to let some of these properties go."

Somewhere in the middle is the opinion of Christie A. Sciacca, managing director at Washington, DC-based consulting firm LECG and a former official at the Federal Deposit Insurance Corp. His view is that more data will be necessary before any kind of judgment can be rendered.

The final shape of the standards will be important as will the final numbers from the fourth quarter, he says: "We have seen some larger banking companies report profits in no small part because of a lower loan loss provisioning. If the numbers for the fourth quarter also show recoveries on previously written-down loans, it could mean that the banks believe they have written down those loans to the point where they will hold on to them and realize those recoveries rather than sell them off ."

And of course, Sciacca adds, much depends upon the bank's capital and earnings. "If a bank has capital and some earnings power, it could lead them to hold on to the loans and assets," he explains. An additional factor, he concludes, would be what the bank sees as alternative opportunities for the capital.

What is clear is that the banks themselves are in for much internal change, Raines says. "They will have to examine their portfolios thoroughly with a model that is consistent, has been cross-checked and has safeguards," he notes. "They will have to constantly look back at past decisions to see how well they matched up with their projections. Because deciding that a loan may go bad is a subjective decision, banks will have to be as objective as possible in their subjectivity." For a good period of time after the standard is released, Raines continues, banks will likely overshoot the mark until they get used to the new rules.

For all the haziness about the future shape of these regulations and the impact they will have, there is, in fact, a model to which borrowers and investors can refer: Community banks have been following this stricter standard for years and since the financial crisis have been forced to take the strictest interpretation possible by regulators.

Community banks, in short, did not have the protection of relaxed mark-to- market accounting standards, or for that matter, a helpful TARP-backed handout. At the same time, local regulators suddenly became more rigid than ever in determining what was an appropriate level of reserve capital. These banks had little choice but to sell off assets that were underwater at rock-bottom prices. "Two-thirds of note purchases and foreclosure activity comes from community banks pushing sour real estate off of their balance sheets," Raines estimates.

In many ways, though, referring back to any of the events of the past two years is a mistake. Aft er two years of remaining frozen in place, too terrified to take a risk, banks are yearning to begin behaving like banks again. In other words they want to start lending, and to do that, they need to clean up their balance sheets once and for all, says Jonathan Schultz, principal and co-founder of Woodbridge, NJ-based Onyx Equities LLC, which owns a portfolio of over three million square feet of office, retail, and industrial properties in New York, New Jersey, Connecticut, Pennsylvania and Florida.

"Banks sat out that period in our economy when no one knew what revenue would be and so no one knew how much to reserve for losses," he says. "But as it becomes clearer that we are not falling off a cliff and we are in an economic recovery, banks are starting to think about lending again, especially with rates so low and the ability to make more money with wider spreads."

Indeed, it is the C-level suit, and not so much anything put forward from IASB and FASB, that will be the real impetus behind the sale of many of these assets, Joseph B. Rubin, principal in Ernst & Young's Transaction Real Estate practice in New York City, says. "Banks are feeling more confident with their stock prices valuations," he says. "They have been moving away from pretend and extend."

None of this is to say that banks will be turning distressed loans into the market wholesale. "They are looking carefully to see what the strategy should be for each loan," Rubin says. "Unless otherwise required by accounting regulations, they are trying to see what is a realistic solution, and that could well be maintaining a property or loan on the balance sheet as the borrower implements a plan."

However, at the macro level, he said, the thinking has clearly changed. "Upper management wants to see the bank move forward and get back into the traditional business of lending," he says. "They want their problems behind them. They are tired of analysts and investors hounding them about when the write off s will end, what really is the quality of their portfolios."

One unknown is how banks will go about implementing or executing this new mindset. Will there be huge bulk sales of billions of dollars at a time or will they opt for smaller pools? Indeed, Rubin says he thinks these sales are happening already in as quiet a fashion as possible. "We heard through the grapevine that there has been a significant disposition of a portfolio recently," he says, "not in a big portfolio sale but in quiet one-off transactions."

Banks that do opt for the splashy portfolio sales, besides drawing attention to the distress clogging their balance sheets, will have to offer a significant discount, Rubin says.

The one-off sales model is more work-intensive, but there is no shortage of investors willing to scoop up these assets, he notes. "There is a load of money, as we all know, waiting in the wings for these deals."

Not that one-off s aren't trading at a discount. Indeed, that is another yet-to be- established clearing price the market must determine. Again, there are few models to look to for guidance. The closest could be the FDIC's structured sales program, but that is a fl awed analogy in many ways (which is fortunate for eager investors since the FDIC has not been selling off these assets at that great of a discount).

If the banks were to acquire assets in a structured transaction, the FDIC model might have some relevance, Rubin says, but even then these are JV transactions with the FDIC maintaining an ownership stake. "Face it, we don't have a market clearing floor or ceiling established, and the first wave of transactions will be those that have to take a possible hit to establish one," he concludes.

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