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August 13, 2012
Message from the President
 Credit is critical to the health of the real estate industry, and proposed new banking regulations based on the Basel III capital requirements could affect its general availability.
Basel III is a global agreement developed by central bankers and banking regulators from 27 countries. It is designed to make the banking system more resistant to financial shocks by placing higher capital requirements on banks. Each country that is a party to Basel III is responsible for writing its own rules to implement the agreement. In the United States, the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have issued proposed regulations that would require banks to maintain a level of top quality capital approximately three times greater than they are required to hold under existing rules.
REITs and other commercial real estate businesses could be significantly impacted by the new capital requirements. The rules have the potential to make mortgage-backed lending less available and more expensive. Also, the higher capital requirements for banks tied to mortgage-backed securities could negatively impact the securitization market. Additionally, hedging strategies using derivatives could become more costly.
NAREIT, together with The Real Estate Roundtable and other real estate associations, is conducting a detailed analysis of the proposed rules. This analysis will provide the basis of our joint comments on the proposed Basel III rules to the federal regulators, which are now due by Oct. 22. Our goal is to accurately inform the regulators about the potential effects of the proposed rules on our industry.
Steven A. Wechsler
President and CEO
FASB Abandons Entity-Based Approach to Investment Property, Retains REIT Scope Exception in Investment Companies Guidance for Equity REITs
 On Aug. 8, NAREIT attended a Norwalk, Conn., meeting of the Financial Accounting Standards Board (FASB) that focused on the board's Investment Property Entities and Investment Companies projects.
George Yungmann, NAREIT's senior vice president for financial standards, and Chris Drula, NAREIT's senior director for financial standards, attended the meeting. At the meeting, the board tentatively agreed to abandon the entity-based approach to accounting for investment properties. Additionally, the board tentatively agreed to retain the REIT scope exception in its Investment Companies guidance for equity REITs. Issues relating to mortgage REITs will be discussed as part of the Investment Companies project at a future meeting.
 The board agreed to delay its decision on next steps in the project while the staff conducts further research on how investors view investments in investment property and how constituents view the tentative decisions on lessor accounting.
In a letter from NAREIT to the FASB on Feb. 15, NAREIT advocated that the FASB suspend its efforts to develop an entity-based model and pursue an asset-based model for investment property similar to International Accounting Standard 40, Investment Property. Further, NAREIT recommended that the FASB retain the REIT exception in the Investment Companies guidance.
(Contact: Christopher Drula at cdrula@nareit.com)
FASB Reaffirms Investment Company Accounting for Entities Regulated by 1940 Act
 On Aug. 8, the FASB reaffirmed a previous tentative decision that would automatically require entities regulated by the Securities and Exchange Commission Investment Company Act of 1940 to be covered by the standard. In so doing, these entities would not be required to meet the definition of an investment company that is included in the guidance in order to apply Investment Companies guidance.
In a submission letter to the FASB on Feb. 15, NAREIT argued that, if the FASB believes that it is important to include companies in the scope of the Investment Companies guidance simply because they are regulated under the 1940 Act, the FASB should exclude "mortgages and other interests in real estate," which are statutorily excluded from the 1940 Act. The FASB plans to discuss issues relating to mortgage REITs at a future meeting on its Investment Companies Project.
(Contact: Christopher Drula at cdrula@nareit.com)
REIT.com Videos: Agree, Akin, Friedman and Whyte
 Agree Realty Corp. (NYSE: ADC) is working with retailers that are both "web resistant" and "recession resistant" as the firm undertakes new projects across the country, according to Joey Agree, president and COO of the Michigan-based, single-tenant retail REIT. The company recently completed work on the site of a McDonald's restaurant in Southfield, Mich., and has several projects that are currently under construction. They include the sites for a Walgreens drug store in Rancho Cordova, Calif., a Wawa gas station and convenience store in Kissimmee, Fla., and a JP Morgan Chase bank branch in Venice, Fla. "For the remainder of the year, we anticipate additional announcements on the West Coast and in the Southeast, as well as some additional announcements in the Midwest. So, we've got a number of projects teed up and ready to go. We are excited to get in the ground," Agree said.
 Uncertainty in the commercial real estate industry is creating opportunities for mortgage REIT Dynex Capital Inc. (NYSE: DX), according to Thomas Akin, the company's chairman and CEO. "Dynex and our whole business, in general, thrive on the uncertainty in the marketplace," Akin said. The Federal Reserve's interest rate policy is helping to drive the uncertainty in the marketplace, according to Akin. He noted that rates have been "exceedingly low" for four years, and there has been discussion of keeping rates low beyond 2014. Dynex continues to benefit from "extraordinarily" favorable interest rates, driving up its dividend yield, Akin said.
 Associated Estates Realty Corp. (NYSE: AEC) recently made a dramatic move to expand its portfolio from the Midwest into the Southern California market. In May, the company acquired the historic Desmond's Tower at 5500 Wilshire Boulevard in Los Angeles. Jeff Friedman, president, CEO and chairman of the multifamily REIT, said the deal gave Associated Estates a "stealth kind of way" to enter the Southern California market. "We've talked about our desire to grow in Southern California, and the acquisition of the property on Wilshire Boulevard is the beginning of our setting our stakes, so to speak, on the West Coast," Friedman said.
 Look for continued growth in valuations and operating income in the commercial real estate industry during the second half of 2012, according to Paul Whyte, managing director with Credit Suisse and head of the firm's real estate investment banking division. Whyte said he expects the gains will be "spotty." He also said he expects investors to keep up the ongoing "flight to quality" in terms targeting trophy assets. "In uncertain times, capital tends to go where they see long-term opportunity," Whyte said. Within the retail sector, Whyte said he currently sees more value in higher-quality, class-A mall properties, rather than assets in suburban markets. Whyte also singled out data center REITs as an intriguing subsector for investors.
(Contact: Matt Bechard at mbechard@nareit.com)
Registration Now Open for REITWorld 2012
 Registration is now open for REITWorld 2012®: NAREIT's Annual Convention for All Things REIT®, which will be held Nov. 13-15 in San Diego. REITWorld provides a unique opportunity where REIT and real estate executives, experienced and sophisticated investors, industry leaders, and academic experts come together in one setting to share their specialized knowledge and experience.
General sessions provide an opportunity to hear economic insights and perspectives from leading authorities, while the popular sector spotlights give attendees the opportunity to delve deeper into specific industry segments with the senior management of REITs.
Visit the REITWorld Event Page to register and to get all the details regarding the event as they become available.
(Contact: Katelyn Rowland at krowland@nareit.com)
Update on FASB Repurchase Agreements and Similar Transactions Project
On Aug. 1, the FASB tentatively decided that repurchase agreements that involve similar, but not identical, financial assets (e.g., mortgage dollar roll transactions) would be accounted for as secured borrowings, provided that they meet certain criteria.
NAREIT member companies operating as mortgage REITs will be particularly interested in the board's latest decisions, given the prevalent use of repurchase agreements as a source of financing in this sector.
The FASB intends to issue an exposure draft during the fourth quarter of 2012. The board has not established an effective date for the proposed guidance. Once the board issues the exposure draft, NAREIT will establish a task force to evaluate the proposal and consider whether NAREIT should comment on the exposure draft.
(Contact: Christopher Drula at cdrula@nareit.com)
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