The biggest single impact on U.S. business practices in 2003 – and on real estate – will be continuing fallout from the Sarbanes-Oxley Act. With FASB and the SEC both pushing rules going far beyond Sarbanes Oxley, the heightened workload and financial reporting required by the Act are the least of a CEO’s problems. One area of impact for real estate is in the treatment of Special Purpose Entities (SPEs), a frequently used financial device in the structuring of synthetic leases. New rules on consolidation won’t kill synthetic leases off completely but terminal illness is likely. The issue then becomes – what happens to the estimated $500 billion-plus in property currently covered by synthetic leases? Look for traditional sale/leaseback investors or opportunity funds to benefit. A spate of year-end accounting rule changes will also have a major impact on the real estate business in 2003. FASB’s proposed change to the accounting treatment of guarantees is one notable example. Since almost every real estate deal contains some kind of guarantee, broader disclosure requirements could hit everyone from buyers to sellers to bankers, further pushing up the cost of doing business. FASB 141 (Business Combinations), would impact real estate acquisitions since owners would need to allocate portions of the land and residual building value to leases within the building, further complicating their accounting of individual assets.From opportunity funds to REITs and C-Corps, investors, shareholders, and lenders alike are looking for transparency and holding management to new standards. Look for a spate of new board announcements among REITs and other public companies next year – look for opportunity funds to strive to improve investor relations and private companies to work harder to maintain relations with their shareholders. This information was supplied by Ernst & Young(www.ey.com)and excerpted from the companies’ Annual State of the Real Estate, Hospitality, and Construction Industries 2003 Report.