With Congress Back In Session, CRE Lobbyists Push For Renter, Retail Help In Next Stimulus
WASHINGTON, D.C. — Lawmakers returning to the nation's capital Monday face mounting pressure to pass another coronavirus relief bill, as cases have continued to surge nationwide and millions of Americans remain unemployed.
There remains a wide gap between the size of the stimulus package desired by Democrats and Republicans, and the parties have less than three weeks to reach an agreement before members of Congress leave for their August recess.
Commercial real estate leaders have been pushing to make sure the agreed-upon bill includes their priorities, such as providing support for renters and small businesses, ending the eviction moratorium and assisting building owners in implementing safety measures.
Many priorities that commercial real estate and other industries are pushing for involve extending pieces of the CARES Act that expire within the next few weeks, such as the expanded unemployment benefits and the Paycheck Protection Program. The relief bill passed in April didn't account for the coronavirus continuing to spread at the rate it has this summer, industry leaders said, so another stimulus package has become a necessity.
At least 140,000 people have died from the coronavirus in the U.S. as of Sunday, according to Johns Hopkins University data, and more than 3.7 million cases have been reported. The U.S. recorded more than 70,000 new cases in a single day for the first time Thursday, and it crossed that threshold again Friday.
The U.S. unemployment rate remained in double digits last month, and the number of new weekly jobless claims has been above 1 million every week since late March, the Washington Post reported. The highest week of unemployment claims during the Great Recession was 665,000.
The spike in cases, especially in Republican-led states that weren't as hard-hit by the first wave, has strengthened the belief of industry leaders that Congress will pass a relief bill during this legislative session. The size of that bill remains to be seen.
The Democrat-led House of Representatives in May passed a $3 trillion relief package, the HEROES Act, but President Donald Trump declared the bill "DOA," NBC News reported. The Trump administration has called for limiting the next relief package to $1 trillion, but House Speaker Nancy Pelosi rejected that idea, saying in a July 9 news conference it doesn't come close to the necessary scale, Politico reports.
The total amount of stimulus provided could determine the speed of the economic recovery, which is ultimately the most important factor for the health of the commercial real estate industry, Sage Policy Group CEO Anirban Basu said. Basu, a leading economist who consults with commercial real estate firms, said he thinks Congress needs to pass something at least equal to the scale of the $2.2 trillion CARES Act.
"Coming out of this period we will have many empty office suites, abandoned storefronts, shuttered restaurants and a commercial real estate segment in ruins," Basu said. "Congress needs to do what it needs to do to sustain a vigorous economic expansion, and that means another stimulus passed at some point this month or in August. It has to be significant."
Beyond the overall scale of the stimulus package, commercial real estate leaders are also focused on a series of measures they hope will help keep the market afloat in the coming months.
Apartment rent collections have remained relatively strong during the crisis, a phenomenon industry leaders attribute to federal assistance including expanded unemployment benefits, the individual stimulus checks and the Paycheck Protection Program.
The type of rental assistance industry leaders are pushing for varies, but they agree Congress must provide money to help apartment tenants pay their monthly bills to avoid significant evictions or apartment loan defaults.
The National Multifamily Housing Council found that 87.6% of apartment tenants made a full or partial rent payment as of July 13, down from 89% one month earlier. NMHC Senior Vice President for Government Affairs Cindy Chetti attributed the stable collections numbers in part to the $600 unemployment checks the federal government has provided on top of state benefits. But that program is set to expire at the end of the month.
"We are very concerned that once those unemployment benefits expire at the end of July that we could see a significant drop-off in rent payments in August and September," Chetti said.
NMHC hasn't specifically advocated for an extension of the $600 in added benefits, which some Republican lawmakers and economists argue have disincentivized people from returning to work. But the multifamily industry group is adamant that if that program isn't replaced, Congress must pass another form of relief for renters.
The Real Estate Roundtable is also not directly advocating for an extension of the $600 checks, CEO Jeff DeBoer said, but he said the program has been helpful and he thinks some type of rental assistance is necessary.
"Perhaps the extra $600 needs to be the formula, and it might need to be reformed in some way, but the bottom line here is we very much want to see assistance to people who have been damaged by the virus in terms of the economic impact, and we want to see assistance continue to flow to them," DeBoer said.
Basu said the expanded unemployment benefits create a disincentive to return to work, and he said if asked one month ago he would have called for ending the program. But the spike in coronavirus cases that has caused some states to close businesses again has led him to believe another one- to two-month extension is necessary.
CBRE Chairman of Americas Research Spencer Levy said he sees small businesses having a difficult time bringing workers back because they are collecting the extra money from unemployment. But he also sees the payments as enormously beneficial for the apartment industry and thinks a short-term extension could make sense.
"There is no perfect solution here," Levy said. "You certainly would like to find some solution that supports people through the end of the crisis, but at the same time gives them an incentive to work ... In the meantime, giving more unemployment, certainly until we see a material reduction in social distancing, seems to be the way to go."
Walker & Dunlop CEO Willy Walker, who frequently talks with political leaders about issues affecting the commercial real estate industry, said he believes Congress will pass at least a partial extension of the extra unemployment benefits. He also said he is pushing for additional money to assist renters.
"From the many discussions I've been having with lawmakers on both sides of the aisle, I think there will be some extension, whether a step-down form of $400 or $450 a week or something else," Walker said Wednesday on his Walker Webcast series. "I think with the number of people still unemployed in America, both Republicans and Democrats will want some extension of those unemployment benefits."
Support for Retail Businesses
The retail sector has been particularly hard-hit by the pandemic and the mandated closure of businesses, and experts say Congress should implement special relief measures for retailers.
Thousands of retailers took in a combined billions from PPP loans, another program that expires in the coming weeks that industry leaders want to see extended. In addition to extending the program, which expires Aug. 8, industry experts say some changes should be made to the program.
"It was really beneficial and should be extended, but they should have something in there that targets those areas most hard-hit," Levy said of the PPP program. "That would include retail and hotels in particular, but there are also some other areas including student housing, seniors housing — and even the office sector is having some liquidity issues."
Basu also said he thinks Congress should extend the PPP program, as many businesses have now run out of the money. He also thinks larger retail companies that are struggling and facing bankruptcy should be eligible to receive the funds, in addition to small businesses.
"I'm more convinced they should receive funds, because to the extent they receive funds, they can hold onto their staff," Basu said of large retailers. "If the goal is trying to keep as many Americans employed as possible, then major employers like Neiman Marcus and J.C.Penney, which will continue to operate hundreds of stores after bankruptcy, probably should receive some funds."
The Real Estate Roundtable is pushing for a rental assistance fund for small retail businesses, DeBoer said, and he thinks larger retailers should receive federal lending facilities.
"We're urging that a rental assistance fund be set up to help those businesses pay their rent and meet their obligations," DeBoer said.
Ending Eviction Moratoriums
Apartment owners have opposed the eviction moratoriums that states have passed across the country, and the industry is pushing Congress to end the federal moratorium.
Even in states such as Virginia that have lifted their moratoriums, a nationwide ban on evictions remains in place for any properties with government-backed loans. Walker said has been pushing Congress to end this moratorium, including during a meeting with the Senate's Joint Economic Committee earlier this month.
"I said to them, 'You haven't asked Walmart to give away free food, you haven't asked Walgreens to give away free medicine," Walker said. "Yet with an eviction moratorium, you're essentially asking landlords to give away housing."
Walker said he encouraged the senators to solve the housing issue by extending the unemployment benefits or providing other assistance because if people can afford to pay rent, they won't have to worry about eviction.
NMHC Vice President of Construction, Development and Land Use Policy Paula Cino said the organization supported temporary moratoriums at the beginning of the crisis, when the economic uncertainty was at its peak. But now, it is advocating for an end to the federal moratorium. She also said Congress should solve the problem by providing relief to renters.
"As we begin to understand the scope of the crisis, we need a longer-term solution," Cino said. "A protracted moratorium period is unsustainable for housing providers and ultimately unsustainable for renters because building owners rely on rent payments to satisfy their obligations."
Basu, an independent economist whose funding doesn't come from real estate businesses, said he doesn't think the eviction moratorium should come to an end.
"It's not a great situation, but you also don't want to throw kids onto the street," Basu said. "It's very challenging, but if we make a statement that the $600 federal subsidy should be extended for one or two months, I think it makes sense to extend the moratorium for one or two months."
Paying For Building Safety Measures
Commercial property owners have had to spend money on personal protective equipment, cleaning supplies and other steps to facilitate social distancing in their buildings, and the industry thinks Congress should help them cover these costs.
"It's clear businesses are going to have to spend a lot of money to keep people safe and healthy," DeBoer said. "What we'd like to figure out is maybe it'd take the form of a tax deduction or beefed up credit or some way to help offset the cost."
Cino said this has been especially costly for apartment owners, who have had to increase building operations as residents spent more time in their homes. She said Congress could provide a tax credit to help owners pay for the cost of keeping their buildings safe.
"Our buildings are more occupied than ever as people were asked to stay home," Cino said. "Even normal levels of operations and maintenance would have gone up in this period, and then you layer on additional needs we have in sanitation, disinfection, reconfiguring of common areas, not to mention the technology we're trying to employ to overcome in-person restrictions."
Support For The CMBS Market
The commercial mortgage-backed securities market has experienced distress during the crisis, with a significant increase in delinquencies, and industry experts say Congress should try to help support the market.
Levy said the CMBS world has been harder hit than other capital markets because lenders have the least amount of flexibility. He said the federal government could create a financing vehicle for CMBS borrowers that would provide preferred equity in between the CMBS loan and the equity portion of a property's capital stack that would be payable at 2% interest.
"That would be a bridge vehicle that could work for borrowers, but it's not going to work for all of them," Levy said. "Many folks with CMBS debt, particularly in the hotel and mall space, are getting no revenue, and many of them may throw in the towel."
DeBoer said that the federal government could help the CMBS market by providing financial assistance to the real estate sectors that are causing the delinquencies.
"The problems in the CMBS markets are really problems with loan pools that are dominated by retail or lodging businesses, so if there could be some assistance in that area, it would help ease the pressure in the CMBS world," DeBoer said.