Author: Trey Jackson

President Trump Signs Historic $2 Trillion Coronavirus Relief Package; Roundtable Analyzes Loan Programs, Tax Relief, Federal Reserve Actions

Posted on by Trey Jackson

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A massive $2.2 trillion emergency coronavirus relief bill was signed into law today by President Trump shortly after passage by the House of Representatives, following unanimous approval on March 25 by the Senate.  The historic legislative package—the Coronavirus Aid, Relief, and Economic Security (CARES) Act—comes as the United States registered the largest amount of coronavirus cases in the world and a record 3.3 million jobless claims in one week. (White House video of signing and Axios March 27, Wall Street Journal  March 27 and New York Times  March 26)

  • The CARES Act—the largest rescue package in U.S. history—includes $100 billion for hospitals and the medical workforce to obtain products, medicine, and equipment needed to meet the capacity surge in patients throughout the country. (Bill text here, summary from Senate Appropriations Committee Republicans here, and summary from Senate Appropriations Democrats here.)
  • The 883-page bill includes direct financial assistance to a wide swath of Americans and significantly expands unemployment assistance. The legislation also provides loans, grants and other financial assistance to state and local governments, as well as to and all types and sizes of U.S. businesses.
  • For the business community, The CARES ACT establishes a number of assistance programs, largely based on how many workers are employed by a given business concern. The Roundtable’s CARES Act webpage provides an analysis of the bill.  Separate Roundtable documents below summarize the provisions that target:
  • The CARES Act authorizes $500 billion for direct loans and guarantees, including $454 billion for the Federal Reserve to support its lending facilities and $29 billion for direct lending to passenger and cargo air carriers.
  • An additional $367 billion is available to assist small businesses through the Small Business Administration (SBA). The Act also contains a number of provisions aimed at granting temporary regulatory relief.  Despite the enormity of the assistance provided by the CARES Act, additional financial assistance legislation is expected if the duration of the national emergency continues for a greater period of time.  (Senate Republican Conference Summary, March 27)

CARES Act Support for Financial Institutions

The CARES Act also includes a number of other provisions designed to support financial institutions during the COVID-19 pandemic.

  • It authorizes the Federal Deposit Insurance Corporation to further guarantee obligations of solvent insured depository institutions and depository institution holding companies – provided that any such guarantee must terminate no later than December 31, 2020. The legislation does not set the maximum amount to be guaranteed. The Act also temporarily authorizes the Office of the Comptroller of the Currency to exempt any transaction from its lending limits, if the exemption is in the public interest.
  • The legislation also allows a financial institution to suspend, during a covered period, requirements under U.S. Generally Accepted Accounting Principles for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt restructuring – and the federal banking agencies must defer to the financial institution’s determination. The covered period begins on March 1, 2020, and ends the earlier of December 31, 2020 – or 60 days after the date on which the national emergency declaration related to coronavirus terminates.
  • The legislation also permits an insured depository institution, bank holding company or any affiliate thereof to temporarily delay measuring credit losses on financial instruments using the new Current Expected Credit Losses (CECL) accounting standard until the earlier of December 31, 2020, or the date on which the coronavirus-related national emergency declaration terminates.
  • Finally, in addition to providing financial support for the Federal Reserve’s lending programs, as discussed above, the legislation would temporarily suspend the statutory limitation on the use of the Treasury Department’s Exchange Stabilization Fund for guarantee programs for the U.S. money market mutual fund industry. Any such guarantee must terminate not later than December 31, 2020.

Industry Briefings and What’s Next

The ongoing legislative and regulatory efforts to combat the COVID-19 outbreak were the subject of a March 23 Real Estate Roundtable “Townhall” conference call moderated by Roundtable President and CEO Jeffrey DeBoer.  Approximately 230 Roundtable members participated in the conference call, which is available here.

  • The Roundtable’s Homeland Security Task Force held a conference call on March 26, featuring Dr. Jay Butler, Deputy Director for Infectious Diseases (DDID) with the Centers for Disease Control and Prevention (CDC), who addressed the U.S. public health agencies’ efforts to confront the crisis.
  • Future Roundtable Townhalls may be offered as policy responses evolve with the fluid developments of the Coronavirus pandemic.
  • Next week, a Marcus & Millichap Webcast on “Getting Through the Global Health Crisis Together” will cover an updated economic assessment; government initiatives and potential impact; state of real estate financing and transaction markets; and challenges by property type. Register here for the webcast, which will be held on Thursday, April 2 at 4:00pm Eastern /1:00pm Pacific.
  • Congressional leaders have already mentioned the possibility of a fourth coronavirus relief measure.  House Speaker Nancy Pelosi (D-CA) on Bloomberg TV yesterday said that subsequent relief bills may “lean toward recovery” and include funds for frontline health-care workers, along with support for COVID-19 health-care services that go beyond testing.  She added that a future legislative package would focus on job creation measures and U.S. infrastructure building. 
  • Vice President Mike Pence yesterday said the administration was open to a fourth bill during a White House press conference. “I think the secretary of the Treasury’s already indicated and congressional leadership has already indicated a willingness to remain open to that. Already we’re hearing from some governors about the need for additional resources, and we will evaluate those very carefully,” Pence said.  (BGov, March 27)

In the Senate, another Coronavirus relief bill likely will have to wait until Senators return from recess on April 20.

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Federal Reserve Expands Emergency Capital Liquidity Facilities; Industry Coalitions Urge Inclusion of Non-Agency CMBS & Relief for COVID-19 Loan Modifications

Posted on by Trey Jackson

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The Federal Reserve took unprecedented actions this week to aggressively support markets in an attempt to contain the economic damage of the coronavirus pandemic – announcing it is “committed to using its full range of tools to support households, businesses and the U.S. economy overall in this challenging time.”  (New York Times, March 23)

  • After the Fed last week cut the federal fund rate to zero and re-started its Quantitative Easing program, it established several new credit facilities this week aimed at injecting a massive liquidity flow to various sectors of the economy.  (Roundtable Weekly, March 20)
  • According to a March 23 Fed statement, the Federal Open Market Committee (FOMC) “will purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.  In addition, the FOMC will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.”
  • Loans, loan guarantees, and other investments will be made available by the Fed through its recently established credit facilities:
  1. Commercial Paper Funding Facility (CPFF)
  2. Primary Dealer Credit Facility(PDCF)
  3. Money Market Mutual Fund Liquidity Facility(MMLF)
  4. Primary Market Corporate Credit Facility(PMCCF)
  5. Secondary Market Corporate Credit Facility(SMCCF)
  6. Term Asset-Backed Securities Loan Facility(TALF) 
  7. Main Street Business Lending Program (pending establishment)

The Fed’s new credit facilities will be backed by the Treasury Department’s Exchange Stabilization Fund, which was allocated $454 billion in the congressional coronavirus economic rescue package signed by President Trump today.

TALF, Private-Label CMBS, and Mortgage Servicers Task Force

The Fed’s Term Asset-Backed Securities Loan Facility (TALF) credit facility, previously used during the 2008 financial crisis, was relaunched on March 23 to “enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.”  (Fed news release, March 23)

  • This week also saw two key actions affecting Agency commercial mortgage-backed securities (CMBS) by the Fed, Treasury and the Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie.  Agency CMBS are securities backed by mortgages on commercial and multifamily properties guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
  • First, the Fed announced it extended its support of financial markets to include agency CMBS, retaining BlackRock Financial Markets Advisory to begin purchasing securities today.
  • Second, FHFA authorized Fannie Mae and Freddie Mac to provide agency CMBS investors with short-term financing of their positions, providing liquidity to these investors.
  • While the TALF now includes Agency CMBS, non-agency CMBS and other certain other commercial assets are currently excluded.  (GlobeSt. Fed Announces Unlimited Bond Purchases, Will Buy Apartment CMBS, March 23)
  • An industry coalition, including The Real Estate Roundtable, on March 24 urged the Federal Reserve, Treasury, and Federal Housing Finance Agency to expand the TALF to include non-agency CMBS – including legacy private-label conduit and single-asset single borrower (SASB) assets. The coalition states the inclusion of private-label assets would stabilize asset prices and shore up the balance sheets of market participants.  (Joint Industry letter, March 24)

  • The letter notes, “CMBS is a visible proxy for real estate loans, where banks, life companies, and other lenders have significant exposure.”  The coalition letter also explains that investors in both Agency and private-label CMBS include public pension funds for many employees at the frontlines of the crisis (hospitals, firefighters, police, and teachers).
  • Separately, Treasury Secretary Steven Mnuchin on March 26 said he has formed a task force of U.S. financial regulators on how to respond to a severe liquidity shortfall facing mortgage service firms, who collect monthly payments from borrowers and facilitate payments to mortgage bond investors.  (GlobeSt, March 27)
  • Most mortgage servicers are nonbank firms that do not currently have access to emergency lending from the Federal Reserve.  Despite an anticipated wave of forbearance requests from borrowers, mortgage servicers remain obligated to advance funds to investors – the owners of most of the nation’s $11 trillion residential mortgages. The Mortgage Bankers Association estimates that if 25% of borrowers ask to postpone their payments for six months, the cost could exceed $75 billion.  (Bloomberg Law, March 26) 

Secretary Mnuchin has asked the task force of the Financial Stability Oversight Council, which also includes the heads of the Federal Reserve and Securities and Exchange Commission, for recommendations by March 30. (Wall Street Journal, March 26)

Relief from Troubled Debt Restructuring (TDR) Label

The Fed joined the Federal Deposit Insurance Corporation (FDIC) and other banking regulators in a March 22 Interagency Statement that encourages banks to avoid automatically categorizing short-term loan modifications linked to the COVID-19 crisis as a Troubled Debt Restructuring (TDR).  The joint statement also encourages borrowers experiencing cash flow problems due to the pandemic to reach out to any FDIC-insured lenders about modifying their loans, without adverse consequences to the bank or the borrower that traditionally come with the TDR label.

  • According to the Statement, “Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.  This includes short-term — for example, six months — modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.”
  • A separate coalition that also includes The Real Estate Roundtable wrote to the National Association of Insurance Commissioners on March 25 to request clarifying guidance that would relieve mortgage loan modifications linked to COVID-19 from the classification as a TDR.

  • The letter informed NAIC, “Servicers for mortgages held by life insurance companies are fielding pressing calls from borrowers seeking temporary relief due to the impact of COVID-19.” 
  • The coalition emphasizes that clarifying guidance from NAIC will “better enable life insurance companies to work prudently and swiftly with borrowers; mitigate COVID-19 impacts on borrowers, life insurance companies and the nation’s economy; and ultimately lead to improved loan performance and reduced credit risk.” (View Letter)
  • Language that supports the efforts of regulators and lenders to work on loan modifications with borrowers affected by the pandemic is also included in the $2 trillion dollar coronavirus response legislation.
  • Real Estate Roundtable Jeffrey DeBoer commented on how lenders may react to in an article yesterday in GlobeSt entitled, “Where CRE Liquidity Stands Today.”  
  • “Congress can’t tell them what to do, but the FDIC has issued a statement giving banks more leeway in modifying loans without having to label the loan as a TDR. There are efforts underway to get the NAIC to issue a similar statement for life companies. All of this is positive,” DeBoer said. “And in turn, we are trying to make sure when property owners try to meet their obligation their lenders will allow flexibility.”
  • On March 24, The Real Estate Roundtable called on all owners and operators of business and residential rental real estate to voluntarily, proactively work in a positive and constructive manner with their COVID-19 impacted tenants respecting current rent obligations.  (Roundtable news release, March 24)

As fast-moving coronavirus developments continue to roil markets, The Roundtable’s Real Estate Capital and Credit Policy Advisory Committee (RECPAC) will continue to provide constructive recommendations as The Roundtable continues to communicate the industry’s ongoing concerns about the crisis to policymakers and regulators.

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Coronavirus Aid, Relief and Economic Security (CARES Act) and Implications for U.S. Real Estate

Posted on by Trey Jackson

 Entire Document

 

 

 

 

Small Business Emergency Loans Under the “Paycheck Protection Program”

 

 Mid-Sized Lending Facility 

 

 Federal Reserve 13(3) Lending Programs and Facilities in the CARES Act 

 Tax Policy 

 

Central Banks Expand Liquidity As Coronovirus Economic Toll Expands; Trump Meets With Hotel CEOs

Posted on by Trey Jackson

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The Federal Reserve and central banks around the world conducted urgent large-scale interventions in capital markets this week to ease strains on economies and investors as the economic toll of the coronavirus expanded dramatically in the U.S.

  • The Fed, the Bank of England, the European Central Bank and central banks in Asia pumped large amounts of liquidity into markets, cut benchmark interest rates and engaged in new bond-buying programs to help arrest the sudden drop in business activity and increase in unemployment rates.  (Wall Street Journal, March 20 and Fed news releases)
  • Fed Chairman Jay Powell said on Sunday, “We are prepared to use our full range of tools to support the flow of credit to households and businesses.”  (Reuters, March 15 and Washington Post, March 20)
  • Additionally, the central bank announced an effort to improve the liquidity of U.S. dollar swaps by increasing the frequency of 7-day maturity operations from weekly to daily – done in coordination with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank (Fed Press release)
  • The Fed also announced the creation of numerous lending facilities to backstop the credit market, including the:
    • Money Market Mutual Fund Liquidity Facility (Fed Press release) 
  • To support the issuance of more debt by states and cities in the coming weeks and months, the Fed today announced an expansion of its asset purchases to include municipal bonds – through the Money Market Mutual Fund Liquidity Facility. (Fed Press release).
  • Market interventions by other nations this week included The European Central Bank (ECB), which on March 18 launched an €750 billion ($820 billion) emergency private and public bond program.  Today, Christine Lagarde, President of the ECB, addressed the program’s specifics and other actions the ECB will take.  “We are fully prepared to increase the size of our asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed. We will explore all options and all contingencies to support the economy through this shock,” Lagarde said.  (ECB Blog, March 20)

Hotels and Malls Hit By Coronavirus Economic Shocks

The economic shockwaves of the coronavirus pandemic are quickly affecting operations of major U.S. hotel chains and other aspects of the commercial real estate industry.

  • CEOs of Marriott, Hilton, Hyatt and other chains met Tuesday with President Donald Trump to describe the virus’ impact.
  • Former Roundtable Chairman and Hilton Worldwide CEO Chris Nassetta told the president that Hilton plans to temporarily suspend operations at most of its hotels located in major U.S. cities – and that he expects global occupancy rates to fall to as low as 10%.   (View meeting of Hotel CEOs and President Trump, with transcript, on C-Span)
  • Nassetta added that in Hilton’s 100-year history, it has never closed a hotel except for remodeling or demolition.  “I’ve been doing this for 35 years. Never seen anything like it,” Nassetta told Trump.
  • At the meeting’s conclusion, United States Travel Association President Roger Dow told President Trump, “I would like to put together what everyone has said here.  The numbers are $355 billion is what we’re going to lose, 4.6 million employees will be out of work, and we’re predicting unemployment will go to 6.3 percent.  So, it’s now — it’s serious.” (C-Span video and transcript)
  • Another CRE sector deeply affected by the outbreak is retail.  On March 18, Simon Property Group announced it would temporarily close all of its retail properties, including Malls, Premium Outlets and Mills in the U.S until March 28 to address the spread of COVID-19.  (Simon statement)

The Roundtable is in contact with its membership to assess the widespread repercussions of the crisis and will report its findings to policymakers to help formulate targeted policies to combat the pandemic.

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Tax Changes Affecting CRE in Senate “Phase 3” Coronavirus Package; Roundtable Submits Request for Administration to Waive COD Income

Posted on by Trey Jackson

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Senate Majority Leader Mitch McConnell (R-KY) unveiled a “Phase III” coronavirus economic stimulus proposal on March 19 that includes a number of tax provisions important to real estate – including a temporary reinstatement of the net operating loss carryback; relaxation of the current-law restrictions business interest deductions; and long-sought technical corrections to several provisions in the 2017 tax code overhaul (e.g. qualified improvement property). 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act will be subject to change or additions as Democratic lawmakers and the White House with Republicans engage in urgent negotiations to produce a final bill by early next week. A number of tax provisions in the current package affecting real estate include: 

  • Temporarily increasing the threshold of deductible business interest under section 163(j) from 30% to 50% of EBITDA in 2019 and 2020.
  • Allowing a full 5-year carryback of net operating losses from 2018, 2019, and 2020 with no 80% income limitation.
  • A technical correction to the Tax Cuts and Jobs Act (TCJA) of 2017 cost recovery period for qualified improvement property.
  • A suspension of the new limitation on active losses of a pass-through business (section 461(l)) until 2021.
  • A technical correction to TCJA downward attribution of stock ownership rules.  

Other noteworthy tax provisions in the bill: 

  • Allows employers to defer payment of employer portion of Social Security tax (6.2%) in 2020, with the deferred amount payable in 2021 (50%) and 2022 (50%)
  • Provides recovery checks of up to $1,200 for individuals, $2,400 for married couples.  The rebates are increased by $500 for every child.  The rebates phase out for individuals with incomes above $75K and married couples above $150K.
  • Extends the filing date for income tax returns to July 15
  • Permits postponement of quarterly estimated tax payments due on April 15 and July 15 until October 15
  • Waives 10% early withdrawal penalty for retirement distributions up to $100K for coronavirus-related purposes. Provides favorable rules that spread out income recognition, allow for recontribution of withdrawals, and create additional flexibility for plan loans.
  • Allows non-itemizers to deduct up to $300 in charitable donations in 2020.
  • Suspends AGI limitation on charitable contributions by individuals and increases the AGI limitation on corporations to 25% in 2020.
  • Accelerates access to corporate AMT refundable credits.
  • Allows companies to recover overpayments of tax associated with TCJA one-time repatriation toll charge.

The full text of the CARES Act is available here and a lengthier summary is available here.  Additional Reference: Deloitte’s Tax News & Views March 20 summary.

Cancellation of Indebtedness (COD) Income 

The Real Estate Roundtable today asked Treasury Secretary Mnuchin and IRS Commissioner Charles Rettig to act quickly and use their broad authority to provide additional emergency tax relief that will help discourage permanent business closures, layoffs, and consumer bankruptcies.

Specifically, The Roundtable urges the Administration to waive cancellation of indebtedness (COD) income for all taxpayers for events generating COD income between March 1 and August 31, 2020.   (Roundtable COD letter, March 20)

  • Treasury has the authority to temporarily suspend COD income for one year under the statutory disaster relief tax provisions.  Waiving COD income will help facilitate private parties’ ability to engage in debt forgiveness, debt cancellation, and debt restructuring events that would not be necessary in ordinary times.
  • As the Roundtable letter explains, the action will free up much-needed financial resources that businesses can use to avoid force reductions and layoffs.  For families and individuals, waiving COD income will promote the mutual modification of obligations, including credit card debt, mortgages, student loans, and small business loans – helping them avoid bankruptcies and/or large, unwarranted tax bills.
  • The Roundtable also intends to work with Congress to ensure that it provides a permanent exemption of COD income that accrues during this extraordinary and unforeseeable public health and economic crisis.  
  • The Roundtable is also working with other real estate trade organizations to persuade Treasury to use its disaster relief authority to modify the deadlines applicable to like-kind exchange transactions.  The relief will avoid penalizing transactions delayed by the economic crisis.

As the repercussions of the corona pandemic continue to unfold, The Roundtable’s Tax Policy Advisory Committee (TPAC) continues to work on tax policies that benefit American workers, businesses and the overall economy. 

Policymakers Enact Second Coronavirus Response; Senate GOP Unveils Additional $1 Trillion-Plus Economic Package; Roundtable Urges Focused Policy Action

Posted on by Trey Jackson

Policymakers raced this week to complete a massive economic response to stem the spiraling public health and economic toll of the Coronavirus pandemic. As infection and death rates continued to grow, jobless claims soared, hotels and malls temporarily closed world-wide, and President Trump invoked rarely used emergency powers to fight what he called a “medical war.”  (NYTimes and BBC, March 19)

  • Roundtable President and CEO Jeffrey DeBoer said today, “While the world’s experts work around the clock to solve the health related issues related to the COVID-19 pandemic, Washington must take dramatically more bold policy actions then it has to date to prevent this health emergency from igniting an immediate liquidity crisis or much longer-term economic repercussions. We are actively helping develop a variety of policy responses.”
  • DeBoer added, “We are focused on helping employers maintain their payrolls, helping businesses access new or restructured debt , encouraging banking and other regulators to exercise discretion in loan examinations, seeking new credit facilities (like the Term Asset-Backed Securities Loan Facility (TALF) used during the 2008 crisis) to assist the CMBS market, and working with federal tax authorities to ease transaction deadlines, lower tax penalties in debt modification, broaden the ability to use operating losses and many other areas.  Our policy committees are hard at work and our team is coordinating with all the industry and many outside our industry.”
  • Three phases of public policy responses have been assembled to date as the medical community rushes to develop treatments for the virus. 

Phase 1, enacted on March 6, is a $8.3 billion packaged focused on public health measures to bolster vaccine development and research, increased equipment stockpiles, and support for state and local health responses to the virus.  (Roundtable Weekly, March 6).

Phase 2, signed into law by President Trump on March 18, is the $104 billion Families First Coronavirus Response Act (H.R. 6201), which includes paid leave provisions for employees, free COVID-19 testing, expansion of unemployment insurance, food assistance, and other provisions aimed at immediate relief for affected individuals. (Joint Committee on Taxation, March 16)

Phase 3, a $1 trillion-plus bill introduced yesterday by Senate Majority Leader Mitch McConnell (R-KY), will focus on (1) general economic stimulus, (2) small business and individual relief, (3) airline and travel industry concerns; and (4) health care matters.  

  • Security Act’’ (CARES Act) – which includes cash payments to individuals, an expanded SBA loan program and other small business lending facilities, tax relief, substantial aid to airlines, direct and substantial supplemental appropriations to address the pandemic. (CBS News, March 19)
  • Small Business Administration (SBA) loan provisions supported by a broad coalition of business groups, including The Roundtable, are included in the Keeping Workers Paid and Employed Act, which is “Division A” of the Senate GOP’s CARES Act.  (Coalition letter support letter, March 19) 
  • Sens. Marco Rubio (R-FL), Susan Collins (R-ME) and Lamar Alexander (R-TN) developed the $300 billion SBA relief plan to provide loans for businesses and non-profit organizations with up to 500 employees. A portion of the loans, to cover payroll and payments on pre-existing debt, would be forgiven until June 30.  (Section-by-section summary of  the legislation can be found here and a one-pager can be found here.)
  • After GOP Leaders released the legislative text of the Phase 3 bill, McConnell acknowledged the legislation was likely to change as the White House, Senate Democrats and House leaders weigh in.  “The legislation I’ve just laid out will not be the last word,” McConnell said, adding that he will keep the Senate in session until a Phase 3 coronavirus package passes the chamber.
  • McConnell, Senate Minority Leader Chuck Schumer (D-NY) and Treasury Secretary Mnuchin will lead negotiations starting today in an attempt to hash out a compromise plan by Monday – as applications for unemployment benefits intensify and may top 2 million, according to Goldman-Sachs.  (CBS News, March 20)
  • In a memorandum to House Democrats, Chairwoman Waters outlined her wide-ranging proposals, which would go farther than measures floated in the Senate. Her approach would include larger monthly payments to all Americans via the Federal Reserve, suspension of consumer debt and a new federal insurance backstop.
  • Her proposed plan also includes suspension of private-sector commercial rental payments, evictions and foreclosures – along with suspension of negative credit ratings during the pandemic.
  • At the White House, President Trump today invoked rarely used emergency powers under the 1950 Defense Production Act (DPA) to marshal private-sector production for medical supplies.  “I invoked the Defense Production Act, and last night we put it into gear,” Mr. Trump said today. “We are invoking it to use the power of the federal government to help the states get things they need like masks and ventilators.” (AP, March 18 and Wall Street Journal, March 20)
  • The DPA empowers the federal government to order private businesses and U.S. manufacturers to prioritize government contracts to produce “critical materials and goods” in return for purchase loans or guarantees.  (The Hill, March 20)

The Roundtable Urges Focused Policy Actions

The Real Estate Roundtable, along with 113 other organizations, wrote to the Administration and congressional leadership on March 18 to urge swift and unprecedented action to confront the fallout from COVID-19.

  • The coalition letter states that Washington’s response needs to minimize the number of businesses that could close and workers who may lose their jobs by ensuring all businesses have the resources necessary to ride out the pandemic. The coalition notes that a focused, massive response should:
    • Immediately provide readily accessible, unsecured credit to businesses of all sizes to ensure they have the cash to pay their workers, rent, and other costs during this crisis.
    • Suspend the filing of business returns and the payment of all business taxes to the federal government for the duration of the pandemic. These suspended taxes should include taxes owed for the 2019 Tax Year, estimated payments for 2020, and all payroll tax obligations.
    • Amend the Tax Code to, among other items, restore the ability of businesses to carryback any net operating losses against previous year tax payments; suspend the application of the Section 163(j) limitation on interest expense deductions for tax year 2020 to avoid penalizing businesses for borrowing during this crisis; and suspend the Section 461(l) loss limitation on pass-through businesses to allow the owners of pass-through businesses to fully deduct any losses they incur this year.
  • The Roundtable during the past few weeks of the crisis has also worked closely with its board of directors and 18 national real estate organization partners to develop specific policy recommendations that would help contain the repercussions of the pandemic, stabilize the economy and reinforce the industry.
  • The Roundtable’s policy advisory committees – tax, credit and capital, and homeland security – continue to hold frequent conference calls with industry specialists to analyze market developments and discuss government policy responses (e.g., H.R. 6201, House Financial Services Committee proposal)
  • Additionally, Real Estate Roundtable President and CEO Jeffrey DeBoer on March 9 notified all Roundtable members that the organization’s March 31 Spring Business Meeting was canceled “in light of health and safety issues surrounding COVID-19.” 

As policymakers intense efforts to mitigate the effects of the pandemic, The Roundtable will continue to communicate unified industry policy recommendations in the short-term crisis or addressing longer-term stimulus of the U.S. economy, infrastructure investment, workforce development and efforts to stabilize capital markets.

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POTUS Declares National Emergency to Combat Coronavirus; House of Representatives Readies COVID-19 Response Legislation that Puts “Families First”

Posted on by Trey Jackson

Trump Rose Garden Announces National Emergency

President Trump declared a national emergency this afternoon to unleash billions of disaster reserve funds to combat the coronavirus, as House Speaker Nancy Pelosi (D-CA) announced this evening that she “clinched a deal” with Treasury Secretary Steven Mnuchin on legislation to assist families and businesses immediately impacted by the pandemic.  (POLITICO, March 13)  

Emergency Declaration 

  • “To unleash the full power of the federal government today I am declaring a national emergency,” President Trump announced today in the Rose Garden.  “Through shared sacrifice and national determination we will overcome the virus,” he added.  Stocks rallied throughout the day today and shot-up after the announcement, regaining some of this week’s historic losses.  (CNBC, March 13)   
  • The declaration authorizes the Federal Emergency Management Agency (FEMA) to utilize over $42 billion available in the Disaster Relief Fund, to pump money into the economy for COVID-19 response.  States and cities can use the funds for emergency protective measures such as widespread coronavirus testing, diagnosis, treatment and stabilization.  The money can also be used to purchase durable medical equipment, set-up temporary treatment tents, deploy portable and mobile care facilities, store a 30-day supply or prescriptions for acute conditions, and disseminate public health information.
  • Senate Minority Leader Charles E. Schumer (D-NY) led other Senate Democrats in a March 11 letter urging President Trump invoke the Stafford Act to declare a national emergency.
  • Trump also announced a public-private partnership to mobilize COVID-19 testing.  “We want to make sure that people who need a test can get one safely, quickly, and conveniently,” he added.  The aim of the effort is to supply up to 1.4 million tests next week and five million in a month, with drive-through tests available in critical locations.
     
  • Google will aim to build an online screening website for COVID-19 testing.  Debbie Birx, the White House Coronavirus Response Coordinator, said during the news conference that website users will have to log in, fill out a screening and risk factor questionnaire, and then be directed to a “drive through” testing facility.  The goal is to provide test results within 36 hours.  (AP and Techcrunch, March 13)  
  • This is a “pro-active, leaning-forward, aggressive” response to stay ahead of the pandemic, said Dr. Anthony Fauci, the top infectious disease expert at the National Institutes of Health, at the Rose Garden event.  The emergency declaration removes constraints on government, public health experts, and medical professionals “to do everything they possibly can” to contain and mitigate the virus’s spread.  

Congressional Action

  • On Capitol Hill, the House of Representatives today is expected to pass the Families First Coronavirus Response Act (H.R. 6201),  following reports of agreement reached by House Speaker Nancy Pelosi (D-CA) and Treasury Secretary Steven Mnuchin.  (POLITICO, March 13)  
  • The Senate cancelled its planned recess next week to consider a relief package. “I am glad talks are ongoing between the Administration and Speaker Pelosi,” said Senate Majority Leader Mitch McConnell (R-KY).  “I hope Congress can pass bipartisan legislation to continue combating the coronavirus and keep our economy strong.”  (Roll Call, March 12)  As of this writing, Republicans are reportedly waiting for a “high sign” from President Trump for GOP support of the Families First Coronavirus Response Act.  (POLITICO Playbook PM, March 13)
  • Pelosi remarked that H.R. 6201 is “focused directly on providing support for American families.”  She added, “the three most important parts of this bill are testing, testing, testing.”  Specifically,  the Families First Coronavirus Response Act includes:  

    • required medical insurance coverage for COVID-19 testing for all Americans;
    • extension of unemployment insurance benefits;
    • expansion of paid leave for full-time and hourly employees affected by the virus, including those staying home to care for family members;    
    • shoring up SNAP and other programs that provide food security for school children, low-income families, and the elderly;       
    • additional funds for Medicaid; and 
    • a credit to reimburse companies for mandatory paid sick leave
  • Meanwhile, a framework suggested by Senate Democrats, and a plan of executive actions President Trump announced Wednesday in his oval office address, show that leadership of both parties want a quick economic response from Washington. (Brownstein Hyatt Farber Schreck, “Coronavirus Economic Update,” March 13)  
  • Lawmakers are focused on swift resolution of matters that have the highest chances of immediate bipartisan consensus.  To that end, Congress is unlikely to address the European travel ban on foreign nationals announced by President Trump on Wednesday, which takes effect tonight at midnight.  (New York Times, March 12).  Likewise, a payroll tax holiday opposed by Democrats (CNBC, March 11), and long-term paid sick leave unrelated to the virus and opposed by business groups (The Hill, March 12), are off-the-table.
     
  • Business groups most directly impacted by the COVID-19 fallout have recommended their own tailored measures of government response to assist their industries.  For example, the U.S. Travel Association, the American Hotel & Lodging Association, and the American Resort Development Association joined 150 travel-related organizations urging “calm, rational, and fact-based decisions” as policy makers and public health officials respond to COVID-19.  (March 10 Travel Industry Statement).
  • Also, the American Society of Association Executives (ASAE) urged Congress to consider targeted assistance for tax-exempt organizations and trade groups suffering from event cancellations and reduced meeting attendance as a result of the pandemic. (ASAE Letter, March 6)
  • Real Estate Roundtable President and CEO Jeffrey DeBoer notified all Roundtable members on March 9 that the organization’s March 31 Spring Business Meeting was canceled “in light of health and safety issues surrounding COVID-19.” 
  • The imminent economic relief package anticipated from the House today follows the $8.3 billion measure Congress sent to President Trump’s desk last week.  That legislation focused on public health measures to bolster vaccine development and research, increased equipment stockpiles, and support for state and local health responses to the virus.  (Roundtable Weekly, March 6).   

In the coming weeks, further policies from Congress and the Administration are expected to address longer-term stimulus of the U.S. economy through measures such as infrastructure investment, workforce development, increased lending for small businesses, and stabilizing the capital markets.  The Roundtable will continue to work with our colleague partner associations to unify the real estate industry’s message as policy makers develop and implement measures to mitigate the COVID-19 pandemic. 

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Fannie & Freddie Get Updated Duty-To-Serve Criteria for Manufactured, Affordable and Rural Housing

Posted on by Trey Jackson

FHFA Duty-to-Serve x475

Strict criteria for how the Government Sponsored Entities (GSEs) Fannie Mae and Freddie Mac must facilitate a secondary mortgage market for very low-, low-, and moderate-income families in manufactured, affordable and rural housing were released on March 11 by the Federal Housing Finance Agency (FHFA). (Updated FHFA Guidance)

  • FHFA oversees the GSEs, which remain in government conservatorship since the financial crisis of 2008.  The Housing and Economic Recovery Act of 2008 established a duty for Fannie Mae and Freddie Mac (the Enterprises) to serve the three specified underserved markets.  (FHFA Duty-To-Serve Program)
  • Under the Duty-to-Serve regulation, each Enterprise must prepare a three-year plan showing how it will increase the liquidity of mortgage investments and improve the distribution of investment capital available for mortgage financing for the three markets.  The new evaluation criteria, which take effect 2021-2023 incorporate several changes:
    • Revised ratings framework – The revisions establish four ratings to describe Enterprise performance;
    • Higher expectations for impactful plans – The revisions require a minimum concept score of 30 for each objective, rather than the previous requirement that the concept scores of all objectives average a 30;
    • Increased threshold for determining compliance – The revisions increase the threshold for compliance scores; and
    • Technical changes – The updated Guidance also includes technical changes to reflect current practices that have streamlined processes and improved program administration.
  • The evaluation guidance sets forth the process and standards by which FHFA will evaluate, and report annually to Congress on the Enterprises’ performance and achievements under their plans.  The updated guidance will ensure that the Enterprises Duty-To-Serve programs have a measurable and significant impact in underserved communities.

Federal Housing Finance Agency Director Mark Calabria addressed his agency’s oversight of Fannie and Freddie – who own or guarantee $5.6 trillion in single and multifamily mortgages – during The Roundtable’s 2020 State of the Industry Meeting in January. (Roundtable Weekly, Jan. 31)

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Central Banks Around the World Move to Combat Economic Fallout of Coronavirus

Posted on by Trey Jackson

WHO world map coronavirus

Central banks around the world took dramatic action this week to mitigate the economic fallout of the coronavirus pandemic. 

  • The Federal Reserve Bank of New York announced a bold move yesterday to pump a series of cash injections totaling more than $1.5 trillion of temporary market liquidity into markets and begin buying longer-term bonds.  
  • This week’s actions are designed to mitigate investor fears as the Dow Jones industrial average plummeted more than 2,300 points yesterday – a 10 percent drop that is the worst one-day decline since the 1987 crash.  (Wall Street Journal and Federal Reserve Bank of New York, March 12)
  • “These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the New York Fed said in its March 12 announcement.  The short-term funding move was directed by Fed Chairman Jerome Powell, in consultation with the rate-setting Federal Open Market Committee. (Los Angeles Times, March 12)
  • The Fed’s substantial intervention opens the door to a resumption of bond-buying stimulus known as quantitative easing used during the financial crisis of 2008.
  • U.S. central bankers meet are scheduled to meet next week in Washington, when they could move to slash rates again after implementing an emergency half-percentage-point cut last week.
  • Economists widely expect another quarter-point rate cut at the Fed’s March 18 meeting, if not more, from the current range of 1% to 1.25% (Roundtable Weekly, March 6 and BGov, March 12)

European Central Bank and Individual Nations Respond

After the US Federal Reserve and Bank of England announced aggressive rate cuts in recent days to stimulate their respective economies, the European Central Bank (ECB) left its key interest rate unchanged at minus 0.5%. 

  • Instead, ECB President Christine Lagarde said the central bank would move forward with its $2.9 trillion (2.6 trillion euro) bond purchase program, while making bank loans available at rates as low as minus 0.75%.  (ECB press release, March 12)
  • In her March 12 statement, Lagarde noted the ECU will “add a temporary envelope of additional net asset purchases of 120 billion euros ($135.28 billion) until the end of the year, ensuring a strong contribution from the private sector purchase programmes.”  She also stated, “We welcome the commitment of the euro area governments and the European Institutions to act now, strongly, and together in response to the repercussions of the further spread of the coronavirus.” (Video of ECU press conference, March 12)
  • After Lagarde’s announcement, the spread between German and Italian government bonds increased to more than 2.5 percent as Italy battles a widespread outbreak.
  • Today, the ECB’s chief economist Phillip Lane sought to further reassure European markets.  In a blog post, Lane wrote, “We clearly stand ready to do more and adjust all of our instruments, if needed to ensure that the elevated spreads that we see in response to the acceleration of the spreading of the coronavirus do not undermine transmission [of monetary policy].”
  • British regulators temporarily banned short selling on Italian and Spanish after regulators in Italy and Spain did the same to stem the market slide.  (Financial Conduct Authority  and Reuters, March 13)
  • Germany’s state development bank KfW announced today it will provide a massive expansion of loans to companies in need and defer billions of euros in tax payments.  Olaf Scholz, the German finance minister, told reporters in Berlin, “This is the bazooka, and we will use it to do whatever it takes.”  He added there was “no upper limit on the amount of loans KfW can issue.” (rfi and Financial Times, March 13)
  • German Chancellor Angela Merkel stated yesterday, “We are in a situation that is unusual in every respect and I would say more unusual than at the time of the banking crisis because we are dealing with a health problem, a health challenge for which scientists and medicine does not yet have an answer,” Merkel said. (Reuters, March 12)
  • Central banks in Australia, Japan, South Korea, Indonesia, Norway and Sweden also announced stimulus measures today to relieve the strain on their banking systems. 
  • In China, The People’s Bank on Friday said it will release nearly $80 billion in liquidity into its financial system to assist loans to small businesses and low-wage individuals as the country continues to contend with the coronavirus.  (Wall Street Journal, March 13)
  • The US Federal Reserve’s first emergency move on March 3 to contain the coronavirus economic fallout was to cut interest rates half a point. The move came shortly finance ministers and central bankers from the Group of 7, which includes Britain, Canada, France, Germany, Italy and Japan, held a conference call.

On March 5, Federal Reserve Bank of New York President John C. Williams confirmed that the international community of central bankers are working together to stem the economic shock of the coronavirus. “… policy actions by central banks are clear indications of the close alignment at the international level,” Mr. Williams said.  (NYTimes, March 5)

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Senate Committee Considering Comprehensive Energy Bill that Includes Roundtable-Supported Measures

Posted on by Trey Jackson

Murkowski Manchin x475 edit

A bipartisan, omnibus energy bill with provisions supported by The Real Estate Roundtable was prepared for debate in the Senate this week, as Republicans and Democrats negotiate a package of amendments that may be added to the base bill.  

  • The American Energy Innovation Act (S. 2657) – introduced on Feb. 27 by Senate Energy and Natural Resources Committee Chairman Lisa Murkowski (R-AK) and Ranking Member Joe Manchin (D-WV) [ above ] – is a compilation of more than 50 energy-related measures considered and individually reported last year.  (Bill Summary and text)
     
  • The AEIA focuses on energy efficiency, renewable energy, energy storage, carbon capture, grid modernization, and workforce development to build energy-related infrastructure.
     
  • The bill includes language supported by The Roundtable to improve the Commercial Building Energy Consumption Survey (CBECS) process. 
    • AEIA Section 1001 would require Congress to oversee coordination by federal agencies to gather and report higher quality CBECS data – the only nationwide government survey that estimates the number, location, age, energy consumption and other characteristics of the U.S. commercial real estate stock.
    • Significantly, CBECS data provides the underpinning for EPA’s ENERGY STAR scores – a key real estate performance “label” relied upon by building owners, investors, and tenants.
  • The Senate’s AEIA bill includes other sections of interest to real estate, including authorizations for:  
    • a “Federal Smart Building Program” to implement and demonstrate smart building technologies across the federal real estate stock; 
    • a nationwide survey of “Private Sector Smart Buildings” for study and evaluation by the U. S. Energy Secretary; 
    • codification of the U.S. Energy Department’s “Better Buildings Challenge” – a program that has attracted Roundtable members’ participation; and
    • a “CHP Technical Assistance Partnership” to provide project-specific engineering and economic assessments for combined heat and power systems.

     

  • Thus far, Senators have filed over 185 amendments for consideration as additions to the underlying bill.  Among them is one offered by Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH) to drive greater transparency and consideration of building owner costs in the process to develop model building energy codes.  (Roundtable Weekly, July 19, 2019).   The Roundtable has long-supported the Portman-Shaheen energy codes provisions, which Portman addressed this week on the Senate floor. 
  • ENR Chairman Murkowski said this week she was working on a “managers’ package” of certain, less controversial measures to be voted on in a block.  “I want to have a managers’ package, but it is entirely possible — we’ve seen it before — that that opportunity is spoiled,” she said.  (CQ, March 4) 

If Republicans and Democrats can agree upon the AEIA amendments eligible for a vote, the Senate will be poised to pass its first major piece of energy legislation in over 12 years, according to Murkowski’s press release.  The measure would then move to the House of Representatives, where the Democratic majority might append provisions that more aggressively address climate change.  (Roundtable Weekly, Feb. 7, 2020) 

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