Erika Morphyis co-editor of Debt and Equity Journal, from whichthis article is excerpted.

Norwalk, CT—For the first time, a REIT that holds assetsin a JV can elect to value those assets at a "fair value"accounting standard. The rule is effective with an entity's firstfiscal year that begins after Nov. 15, 2007, according to theFinancial Accounting Standard Board's recent statement onthe Fair Value Option for Financial Assets and FinancialLiabilities, better known as FASB 159. In certain circumstances,the standard could be adopted even earlier.

Anecdotal observations, though, suggest few REITs plan to takeFASB up on the offer in the near future. In theory, the presumptionis that fair value exceeds book value, so a REIT's borrowing powerwould increase with fair value accounting. "It's one possible routefor REITs to increase leverage," says Steven Marks, managingdirector and REIT group head for Fitch Ratings.