Last week's The Naked Corporation Dispatch (Nov 11) prompted an interesting e-mail from Rose. The most well-known provisions of SOX require auditors to be independent (Title 2) and management to certify the accuracy of financial statements (Title 3). But Rose argues that Title 4, which requires enhanced financial reporting, will actually have more impact on real estate.

Rose sent me a copy of his recent PowerPoint presentation to CoreNet Global,"Sarbanes-Oxley: Are Your Real Estate Books in Order?," highlighting the importance of Section 404 of Title 4. This section addresses financial transactions that involve risk (and what real transaction does not bear some risk?) and mandates three important steps. You must develop a reporting process; you must document that procedure; and you must test compliance periodically.

One small example. If your public corporate client leases space, but does not occupy it, that corporation must decide how to report the transaction. Should it continue to be an expense? Or should the remaining lease obligation be written off? While this kind of decision may have been opaque in the past, it now must be fully transparent and plainly documented. So all of a sudden, corporate real estate departments are front and center as part of financial reporting. Are you ready?

--Peter Pike