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The Latest on Stimulus Legislation

You could be forgiven for thinking that Congress would have passed an additional economic stimulus bill by now. After all, supplemental unemployment benefits have expired, there are days left before the applications by businesses for the Paycheck Protection Program (PPP) are no longer accepted, and Senate and House members are desperate to get on with their August recess and return home so they can campaign in anticipation of the November elections. 

But it will come as no surprise to those used to seeing our nation’s lawmakers follow the routine of pressing against a deadline, blaming the other side for delay or intransigence, and only after the need for political jousting has been satisfied, coming to an agreement. 

So it is with the latest negotiations on the stimulus bill. Whether its provisions from the Democrat HEROES Act or the Republican HEALS Act, let’s hope that the conventional wisdom that an agreement is likely to be concluded next week is correct. You can expect some compromises on the major issues: an extension of supplemental unemployment insurance, modified to reduce the disincentive to work that is present in some states; some measure of liability protection for businesses that reopen consistent with local guidelines; and additional funding for schools and hospitals. Assistance to states remains a flashpoint with many in the Senate, and it is unclear how that may play out.

With that in mind, it is useful to note a few of the ideas and proposals that NAIOP and the real estate industry hope could “hitch a ride” on the last major bill that is likely to be passed by Congress before the November election, or that could bring attention to the challenges facing commercial real estate. These include:

S. 3814, the RESTART Act (Reviving the Economy Sustainably Towards A Recovery in Twenty-twenty Act”), introduced by Senators Todd Young (R-IN) and Michael Bennet (D-CO). The Young-Bennet legislation would extend the Paycheck Protection Program that was created to support small businesses with fewer than 500 employees, but would also establish an SBA 100% guaranteed-loan for small businesses with fewer than 5,000 full-time employees, with loans up to $12 million. Such loans are forgivable up to the amount of total losses incurred by the borrower in 2020. Senators Young and Bennet discussed their legislation Tuesday on CNBC’s Squawk Box, explaining that it is meant to address shortfalls in the PPP program and to help those businesses hurt by the pandemic that have not been helped by current programs.

H.R. 7809, the HOPE Act (“Helping Open Properties Endeavor Act”), introduced by Representatives Van Taylor (R-TX-3) and Al Lawson (D-FL-5). The bill addresses rising concerns regarding the potential wave of defaults of commercial mortgage-backed securities (CMBS) that could result from the prolonged pandemic. Real estate businesses with CMBS debt have particular challenges since their loan covenants are governed by multiparty state law contract, and these typically prohibit additional indebtedness. As a result, CMBS borrowers in need cannot access many of the lending programs created by the federal government in prior stimulus bills. Also, CMBS borrowers face difficulties getting loan modifications or debt relief because they deal with special servicers who collect the payments on behalf of the many bondholders of CMBS trusts, and these special servicers have little flexibility in modifying the loan terms. 

The Taylor-Lawson legislation would provide COVID-affected CMBS borrowers financial assistance through a “Preferred Equity” lending facility, guaranteed by the Department of the Treasury. Because it would be equity, it avoids the problems created by the debt restrictions in CMBS loan agreements. NAIOP staff worked closely with the sponsors of the legislation as they developed their proposal. Upon introduction of the bill, NAIOP CEO and President Thomas Bisacquino commended the sponsors, saying that “the legislation recognizes the unique nature of commercial mortgage-backed securities (CMBS), and the limitations imposed on servicers of CMBS debt when working with borrowers that have been adversely affected by the COVID-19 pandemic. CMBS delinquencies have increased at an alarming rate since the beginning of the pandemic, and without the temporary liquidity afforded by the HOPE Act, our nation could soon be facing widespread foreclosures in the commercial real estate industry at a time when the nation’s businesses are struggling to reopen. We are grateful to the sponsors of the HOPE Act for their foresight and responsible action.”

Federal Reserve Lending Programs, specifically the much-criticized Main Street Lending Program (MSLP), have been a disappointment as far as the commercial real estate industry is concerned. The Fed has been criticized for establishing a facility that, because of its strict underwriting requirements, make it unlikely that a business hard-hit by the COVID 19 pandemic and actually needing a loan would be able to access funding from the MSLP. From the point of view of commercial real estate, the Fed’s requirement that the loans be based on an EBITDA (earnings before interest, taxes, depreciation and amortization) analysis of the borrower’s financial status unduly penalizes real estate business, since EBITDA is a poor financial barometer for asset-based enterprises.  NAIOP as part of a real estate coalition lobbied Congress to take action, resulting in Senator Mike Crapo (R-ID), Chairman of the Senate Banking Committee, writing to Fed Chairman Powell encouraging expansion of the program.

Tax provisions will likely also be included in the stimulus bill, in particular, employee retention and expanded worker tax credits, and tax credits for businesses that incur cleaning costs in connection with COVID-19 reopening preparations. As of this time, however, the staff of the tax-writing committees have not been given specific directions on drafting legislative language, signaling those negotiations are not as far along as other parts of the bill.

These efforts by lawmakers to address the concerns of the commercial real estate industry are important in their own right, but the point should be made that inclusion in a final stimulus bill remains a challenge. Nevertheless, the economic impact of the pandemic appears likely to last beyond this year far into next, with the result being that these introduced bills may be future vehicles for congressional action.

2 Responses

  1. This article was posted on August 5 and since then it seems like every day there are new articles like this one implying that a compromise on the next round of stimulus is impending! Fingers crossed something gets passed before the new year as businesses are really struggling…

  2. The Fed has been chastised for establishing a facility that, due to its stringent underwriting rules, makes it unlikely that a firm impacted badly by the COVID 19 outbreak and in need of finance will be able to get money from the MSLP.

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