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ATLANTA-In response to the current scrutiny of corporate accounting practices, Atlanta-based CoreNet Global finds that 30% of corporate real estate executives are either stopping the use of synthetic leases or reconsidering their use.

Synthetic leases are an accounting mechanism that allows a company to transfer ownership of real estate off the balance sheet even while it continues to occupy the space.

Synthetic leases gained favor during the 1990s. However, scandals at Enron, Worldcom and other companies have shed light on this mechanism among other generally accepted accounting practices, used by corporations to hide transactions from the balance sheet.

CoreNet, a 7,000-member association of corporate real estate executives worldwide, included a question about synthetic leases on a July 30 survey distributed to 1,000 of its members.

The survey yielded 130 responses, a majority from companies with real estate portfolios of between 30 million sf and 1.5 million sf.

In a statement following release of the survey findings, Prentice Knight, vice president of discovery for CoreNet Global Learning, the association’s education arm, says, “30% saying they’re changing their attitudes toward synthetic leases is very significant. It shows that the accounting crisis has affected the practice of corporate real estate.

“We also know through research at our Discovery Forums that lease transactions are being scrutinized more closely and at higher levels of the organization, and that even blue chip companies are having to endure more due diligence and credit checks as a result of the accounting scandals of recent months.”

Elsewhere in the survey, 40% of respondents said they expect to cut back on office occupancy over the next six months, and 20% expect their office space occupancy to increase in the same timeframe.

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