Tag: Coronavirus

Policymakers Replenish Paycheck Protection Program, Consider Framework for Larger Economic Response Package; Treasury Questions Public Companies’ PPP Loan Eligibility

Posted on by Trey Jackson

A  supplemental coronavirus emergency aid measure enacted today replenishes the Paycheck Protection Program (PPP), which ran out of money after its launch on April 3 due to high demand.  A recent Small Business Administration (SBA) report shows real estate, rental and leasing businesses were approved for 79,784 PPP loans totaling more than $10.7 billion (figures through April 16).  [Roundtable Weekly, April 17] 

  • SBA’s PPP Loan Approvals report also indicates that, through April 16, the construction sector received the most PPP loans ($44.9 billion) with health care ($39.8 billion), hotels and restaurants ($30.5 billion), and retail ($29.4 billion) also receiving significant percentages of assistance. 
  • The Roundtable on April 8 submitted an 8-Point Plan to policymakers that seeks to clarify and improve the PPP.
  • Policymakers this week have also expressed ideas for expanding the next coronavirus response package beyond individual and business relief measures.  Additional funding programs may include hazard pay for essential workers, vote-by-mail programs and funding for the U.S. Postal Service, with a total cost that could exceed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress last month.  (Roundtable Weekly, March 27)
  • This week’s funding bill is referred to as an interim step to combat the economic impact of the pandemic as lawmakers consider a major follow-up package, generally referred to as “CARES 2.”  (The Hill, April 23)
  • Senate Democratic Leader Chuck Schumer (D-NY) said, “We will need a big, strong and active [fourth bill]. It’ll have to come very soon. The needs are large and great.”  Schumer added that funding for state and local governments is a top priority as municipalities’ tax revenues drop and city officials work to set budgets for the next fiscal year. (The Hill and Axios Cities, April 22)
  • Schumer also stated Federal Reserve Board Chairman Jerome Powell is working to open up the Main Street Lending program to nonprofits and municipal governments.  (AP, April 21)
  • Additionally, Sens. Bill Cassidy, (R-LA) and Bob Menendez, (D-N.J.) on April 19 unveiled legislation that would provide a $500 billion fund to help states and local governments respond to the public health and economic crisis, while maintaining essential services. (Sen. Cassidy news release)
  • Treasury Secretary Steven Mnuchin is reported as stating the next bill may include some infrastructure funding to boost 5G cellular and broadband access, and incentives for manufacturers to bring PPE, pharmaceutical, and other critical infrastructure production back from China.  (POLITICO Playbook, April 24) 

Senate Majority Leader Mitch McConnell (R-KY) this week hedged on any endorsement of assistance to state and local governments, instead focusing on how future coronavirus-related legislation could add to the growing national debt.  “Let’s weigh this very carefully, because the future of our country in terms of the amount of debt that we’re adding up is a matter of genuine concern.”  (The Hill, April 22)

Treasury Questions Large Companies’ PPP Loan Eligibility 

Treasury and SBA updated their Frequently Asked Questions guidance on the PPP yesterday, which questions whether businesses owned by large companies, with adequate sources of liquidity to support the business’s ongoing operations, qualify for a PPP loan.  (Question # 31 from FAQs) 

  • The answer addresses public companies seeking PPP loans, stating “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification [of economic need] in good faith.”
  • Before the PPP ran out of money, approximately 150 public companies received nearly $600 million in loans from the $350 billion program, with some of those companies announcing this week that they will return the funding obtained.  (Wall Street Journal, April 23)
  • Updates to the PPP rules and guidance are available via the Treasury Department’s website (April 23 FAQ update here) and the Small Business Administration’s Covid-19 resource webpage. 

The Real Estate Roundtable’s response and resources, including policy comment letters related to the pandemic, are listed on its website.    

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High Demand Depletes Small Business Loan Program as Congress Negotiates More Funding; President Trump Announces “Guidelines to Open Up America Again”

Posted on by Trey Jackson

Small Business Administration Report on the Paycheck Protection Program - April 13, 2020

The Small Business Administration (SBA) yesterday announced that the Covid-19 Paycheck Protection Program (PPP) hit its $349 billion limit after successfully processing more than 1.6 million loans since the program launch on April 3.  The PPP – funded by the Coronavirus Aid, Relief, and Economic Security (CARES) Act for small businesses struggling with the economic shocks of the pandemic – was quickly depleted as Congress continued negotiations over how to replenish funding.   (Wall Street Journal, April 16)

  • “The SBA has processed more than 14 years’ worth of loans in less than 14 days. By law, the SBA will not be able to issue new loan approvals once the programs experience a lapse in appropriations,” according to a joint statement by the Treasury and SBA.”
  • The urgent need for Congress to move quickly to authorize additional funding for the PPP is detailed in an April 15 letter to policymakers from more than 250 industry and business groups, including The Real Estate Roundtable.   
  • The SBA this week also released its first report on loan approval details since launching the program.  Through April 13, the SBA report shows 49,000 real estate businesses and 115,000 construction businesses were approved for PPP loans.  (SBA PPP Report) See The Wall Street Journal, April 15, “Where the Stimulus Loans for Small Businesses Are Going”)
  • The Roundtable on April 8 also submitted an 8-Point Plan to clarify and improve the Payroll Protection Program (PPP) to policymakers. A coalition letter from national real estate organizations also seeks clarifications and confirmation on real estate businesses’ eligibility for the PPP.  See April 16 letter to the Treasury and SBA. 
  • Updates to the PPP rules and guidance are available via the Treasury Department’s website (April 15 FAQ update here) and the Small Business Administration’s Covid-19 resource webpage.
  • Congressional Republicans this week have emphasized that additional PPP funding should be limited to $250 billion solely for small businesses – while Democrats want to add an additional $100 billion for hospitals, $150 billion for state and local governments and more food assistance funds. (The Hill, April 16)
  • Due to coronavirus health concerns the House and Senate are currently scheduled to return to Washington on May 4.   Until then, both chambers need unanimous support to pass an additional funding package.

Re-Opening the U.S. Economy

  • President Trump yesterday announced “Guidelines to Open Up America Again” that delegates final decisions for states to lift stay at home orders or business restrictions to governors once certain criteria are met.   States would first need to demonstrate their COVID-19 cases are on downward trajectory over a 14-day period, while also establishing a system for testing health care workers before they can proceed to a phased opening.  (Guidelines document and Wall Street Journal, April 16)

President Trump on April 14 also announced the formation of various “Great American Economic Revival Groups” to gain insight on combating the economic impact of the coronavirus from leading business executives representing various economic sectors.  Among the 200 leaders from industry sector groups are 10 members of The Real Estate Roundtable.  (Full list, White House news release and  Bisnow, April 15)

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IRS Guidance Ensures Real Estate Businesses Benefit from Phase Three Tax Relief

Posted on by Trey Jackson

IRS Building

This week, the IRS issued two revenue procedures that will help real estate businesses maximize the amount of tax relief they receive under the “Phase 3” CARES Act. The IRS actions are consistent with recent Real Estate Roundtable recommendations.

Partnership Amended Returns

  • The CARES Act included several provisions designed to generate deductions in prior years that can be “monetized” today, through the filing of amended tax returns, to help businesses stay afloat during the current economic turmoil.  As the Senate Finance Committee summary noted, “[t]hese changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.”  
  • In the understandable rush to enact the CARES Act, Congress did not have an opportunity to consider fully how provisions in the legislation would interact with various aspects of existing tax law and regulations.  In particular, under the partnership audit regime enacted in 2015, partnerships are no longer permitted to file amended tax returns.
  • In a letter on April 4, Roundtable President and CEO Jeffrey DeBoer urged the Treasury Department and IRS to use its regulatory authority to allow partnership to file superseding tax returns that could replace returns filed in 2018 and 2019. 
  • IRS Rev. Proc. 2020-23, released on Wednesday, allows partnerships to file amended returns for those years, effectively providing the relief The Roundtable requested.  

Business Interest Limitation

  • The Tax Cuts and Jobs Act created a new limitation on the deductibility of business interest, but allows real estate businesses to elect out, which most did in 2018.  The election is irrevocable, and the price of the election is longer cost recovery periods for real property and improvements.  The CARES Act liberalized the limitation on the deductibility of business interest for tax years 2019 and 2020.  However, the law did not allow real estate businesses to go back and change their election out of the regime.
  • In its April 4 letter, The Roundtable asked the IRS to allow real estate businesses to revoke elections made in 2018 and 2019.  This afternoon, the IRS issued the requested relief in Rev. Proc. 2020-22.

Like-Kind Exchanges

  • In addition to the actions related to the CARES Act, the IRS has provided relief to taxpayers having difficulty completing like-kind exchanges due to the COVID-19 pandemic.  In late March,  The Roundtable and 21 other national real estate organizations requested relief from the strict statutory deadlines that apply for identifying replacement property and closing on like-kind exchange transactions.  Under IRS Notice 2020-23, like-kind exchange deadlines that would otherwise fall between April 1 and July 14 are extended to July 15.

Opportunity Zones

  • Relief from the various deadlines and compliance testing dates for Opportunity Zones during the pandemic is a Roundtable priority.  IRS Notice 2020-23 provides that if a taxpayer’s 180-day period to invest gain in an opportunity fund would have expired between April 1 and July 14, 2020, the taxpayer now has until July 15, 2020 to make the investment.   

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House Democrats Propose Pandemic Risk Insurance Program Modeled on TRIA; Senate Attempts to Break Stalemate on “Phase 4” Coronavirus Relief Package

Posted on by Trey Jackson

Capitol_Dusk_rooftop_475w

House Financial Services Committee Democrats this week proposed a federal reinsurance program for pandemic risks as part of the next round of congressional coronavirus relief.   (HFS Committee memo)

  • An April 6 memo from the committee’s majority Democratic staff states the recently enacted CARES Act was only a down payment on the relief needed to fully address the historic negative health and economic effects of COVID-19.  For the next congressional package, the memo recommends policy proscriptions focused on both the crisis and the recovery that includes “Pandemic Risk Insurance.”
  • The draft package’s reinsurance program proposal would be “similar to the Terrorism Risk Insurance Program for pandemic risks in order to promote the availability and affordability of insurance coverage that includes pandemic risks.”
  • Whether existing business interruption insurance policies have virus and bacteria-related exclusions is a growing issue between closed businesses and their insurers.  (BGov and Insurance Insider, April 9)
  • Rep. Carolyn Maloney, (D-NY), chairwoman of the House Oversight and Reform Committee and a senior member of Financial Services Committee, circulated a letter this week informing colleagues in the House that she is “… developing the Pandemic Risk Insurance Act of 2020, to create the Pandemic Risk Reinsurance Program, a system of shared public and private compensation for business interruption losses resulting from future pandemics or public health emergencies.”
  • Rep. Maloney’s note explains, “An ounce of prevention is worth a pound of cure. The Pandemic Risk Insurance Act (PRIA) would be an important step in our prevention efforts against future pandemics by both requiring insurance companies to offer business interruption insurance policies that cover pandemics, and creating a Pandemic Risk Reinsurance Program to ensure that there is sufficient capacity to cover these losses and protect our economy in the event of a future pandemic. Like the Terrorism Risk Insurance Act (TRIA), the federal government would serve as a backstop to maintain marketplace stability and to share the burden alongside private industry”
  • Rep. Maloney’s pandemic program would be prospective – not retrospective.
  • The current TRIA program would be triggered if losses from certified acts of terrorism attack exceed $200 million across all affected insurers.  The establishment of the federal terrorism backstop – and its multiple reauthorizations over the years – has been a top policy priority for The Real Estate Roundtable since the 9/11 attacks. (Roundtable TRIA webpage) 
  • John Doyle, president and CEO of the insurance unit of Marsh & McLennan Companies Inc., offered in a March 30 letter to Congress and the White House to help create a federal pandemic backstop.  Doyle wrote, “The basic framework of a pandemic risk insurance program would be to structure a risk sharing model between policyholders, insurers and the federal government.” 

The Roundtable is working with policymakers and stakeholders to help develop an effective pandemic risk insurance program that addresses the current crisis and provides the economy with the coverage it needs to address future pandemic risks.  

Senate Attempts to Develop a Phase 4 Coronavirus Relief Package

Senate Republicans and Democrats this week failed to reach agreement on “Phase 4” coronavirus legislation that would quickly follow and expand the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed on March 27.  Republicans sought more funding for the Paycheck Protection Program (PPP) for small businesses impacted by COVID-19, while Democrats emphasized any follow up measure to the “Phase 3” CARES Act should include increased funding for hospitals and local governments.  (Akin Gump, April 9 and Deloitte, April 10)

  • Negotiations between congressional leaders and the White House over a Phase 4 package are ongoing.  With the Senate in pro forma session on Monday, there is a chance for a deal to be reached over the weekend.
  • The Senate and House are currently scheduled to return for regular business the week of April 20.  Health concerns for Members of Congress and their staff cast doubt on when they can return to Washington to consider legislation. The only way for Congress to currently vote on and send legislation to President Trump is by using the unanimous consent process, which can be blocked by any single member.
  • Rep. Thomas Massie (R-KY) last month forced hundreds of his colleagues to return to the Capitol to pass the CARES Act.  He warned on April 8 that he may again block unanimous consent for a Phase 4 coronavirus bill if it is not held with a roll call vote. (The Hill, April 8)

President Trump wrote on Twitter March 31 that a larger infrastructure should be included in the next coronavirus relief bill.  “With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill,” President Trump wrote. “It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4.”

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Roundtable Unveils 8-Point Plan to Improve the PPP; Roundtable Member Discusses Successful PPP Funding

Posted on by Trey Jackson

8 Point Plan to Reform the Payroll Protection Program -- The Real Estate Roundtable

The Real Estate Roundtable on April 8 submitted an 8-Point Plan to clarify and improve the Payroll Protection Program (PPP) to congressional leadership, Treasury Secretary Steven Mnuchin and Small Business Administrator (SBA) Jovita Carranza.  (Roundtable Letter and 8-Point Plan)

  • The Roundtable supports the intent of the PPP in the CARES Act, and the efforts to get SBA loans to struggling individuals, families and businesses as soon as possible.
  • The CARES Act passed by Congress and signed by President Trump on March 27 established the PPP to provide financial assistance to “any” business concern that has 500 employees or less, or meets small business size standards used by SBA for its existing loan program.  Larger companies sized-out of the PPP might obtain credit support through the Federal Reserve’s new Main Street Lending Program, and its expanded Term Asset-Backed Loan Facility (TALF). (See story above for more details)
  • The Roundtable’s recommendations detailed in the “8-Point Plan to Reform the PPP” would significantly help avoid potential calamitous economic consequences for small businesses.
  • The letters to Congress, Treasury, and SBA transmitting the 8-Point Plan warn of foreclosures by lenders upon building owners who go into mortgage default because rents are not being paid to cover debt service.  The Roundtable’s plan thus supports use of PPP loans to help businesses pay rents and other operating expenses.
  • The Roundtable letter urges Congress and the Administration’s agencies to enact 8 improvements as swiftly as possible to clarify, streamline and improve the process.
  • Additionally, a coalition including The Roundtable today wrote to Fed Chair Jay Powell, Treasury Secretary Mnuchin and SBA Administrator Carranza to request additional guidance on current business affiliation rules as part of the PPP.  (Coalition affiliation rules letter, April 10)
  • Among its requests, the coalition urges the policymakers to allow small businesses supported by venture capital, angel capital and private equity firm investors to access critical funding that would help retain workers and jobs during the economic fallout of this health crisis.

Since the SBA launched the program last Friday by making borrower  applications available on-line, demand for PPP loans has been intense. Challenges have included a massive influx of traffic that has brought website application sites down, confusion over specific application packages, and the technology used to process loans and approve lenders. (The Hill, April 9 and Wall Street Journal, April 10)

Roundtable Member’s Successful PPP Experience

A successful example this week of PPP funding is profiled in an interview recorded today by Roundtable President and CEO Jeffrey DeBoer with Roundtable member Albert Dwoskin, President and CEO of A.J. Dwoskin & Associates, Inc.   (Watch the interview here)

  • Mr. Dwoskin’s company, facing a sudden halt in rental payments due to the pandemic, immediately sought PPP funding to stabilize its capital needs and retain more than 100 employees.  “The application went in on Tuesday and was funded on Friday. We didn’t expect that,” Dwoskin says in the interview.
  • Dwoskin’s Vice President of Accounting & Finance Natalia Ostroveanu, also details the PPP loan process. “J.P. Morgan had a question as part of their review … because the number of employees on the application was different than what the report from ADP showed.  And once I explained to them the reason for that number, they were okay with it and that was yesterday morning.  Today, this morning, we already received the funds,” Ostroveanu states.

Since the SBA launched the program last Friday by making borrower  applications available on-line, demand for PPP loans has been intense. Challenges have included a massive influx of traffic that has brought website application sites down, confusion over specific application packages, and the technology used to process loans and approve lenders. (The Hill, April 9 and Wall Street Journal, April 10) 

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Federal Reserve Launches $2.3 Trillion in New Credit Facilities, Expands TALF to Existing AAA CMBS and Commercial Mortgage Loans

Posted on by Trey Jackson

Federal Reserve Building DC

The Federal Reserve yesterday announced the establishment of $2.3 trillion in new credit lending facilities in an effort to restore liquidity and steady economic shocks from the Covid-19 pandemic. These actions include the expansion of its Term Asset Lending Facility (TALF) to include AAA-rated commercial mortgage-backed securities (CMBS) and commercial mortgages as eligible collateral.  (Fed news release and TALF term sheet, April 9)

  • The Fed’s Term Asset Lending Facility – previously used during the 2008 financial crisis and relaunched on March 23 – will now accommodate non-agency CMBS issued before March 23, 2020; any issuance after that date is ineligible.  All collateral must also be AAA-rated and located in the U.S or its territories. The TALF will support up to $100 billion in credit, which is backed by $10 billion in credit protection from the Treasury Department. (TALF term sheet)
  • Under the TALF, static collateralized loan obligations (CLOs) are also eligible collateral, yet CMBS securities related to single-asset single-borrower (SASB) and commercial real estate collateralized loan obligations (CRE CLOs) are not eligible at this time.
  • The terms and conditions for commercial mortgages to be included as eligible collateral in the TALF have yet to be announced. (TALF term sheet, April 9)
  • While the Fed’s recent actions are welcome, an industry coalition, including The Roundtable, continues to advocate for the inclusion of CRE collateralized loan obligations (CLOs) and Single Asset, Single Borrower (SASB) CMBS in the TALF. (Joint Industry letter, March 24)
  • The Federal Reserve also announced $600 billion for purchasing loans in two new “Main Street” facilities. The Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF), which will purchase 95% participations in new 4-year loans to businesses that have up to 10,000 employees or up $2.5 billion in 2019 annual revenue. Borrowers with more than 10,000 employees but less than $2.5 billion in 2019 revenue may potentially qualify.
  • The Fed’s new credit facilities also include $500 billion for short-term municipal bonds and additional funding for the central bank’s purchases of larger investment grade businesses and capital markets securities.
  • Fed Chair Jay Powell commented on yesterday’s actions during a webinar.  “Many of the programs we are undertaking to support the flow of credit rely on emergency lending powers that are available only in very unusual circumstances—such as those we find ourselves in today—and only with the consent of the Secretary of the Treasury.”  He added, “I would stress that these are lending powers, not spending powers.  We will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery.”
  • During Q&A after his remarks, Chairman Powell acknowledged severe liquidity concerns faced by mortgage servicers as the pandemic has resulted in widespread forbearance on mortgage payments.  Powell referred to the mortgage market as “at the very center of our economy” and stated, “We’re watching carefully the situation with the mortgage servicers and I will just tell you that we certainly have our eyes on that as a key market.”  (S&P Global, April 9)
  • On April 4, a broad coalition financial industry and affordable housing advocates, including The Roundtable, urged government regulators to provide a source of liquidity to mortgage servicers in need of additional capacity to support homeowners and renters impacted by COVID-19. (Coalition mortgage servicers letter)
  • While this week’s actions could provide up to $2.3 trillion in loans to support the economy, the Treasury and the Fed have not yet committed the full $454 billion allocated for credit support to lending facilities under the recently-enacted Coronavirus Aid, Relief, and Economic Security Act (CARES).  Therefore, more loan programs or an expansion of these now existing loan programs could be forthcoming. (Roundtable Weekly, March 27).
  • This week’s massive Fed intervention also includes the creation a Paycheck Protection Program Lending Facility (PPPLF) to support the Small Business Administration’s Paycheck Protection Program (PPP) – established under the CARES Act.  This facility will extend credit to eligible financial institutions that originate PPP loans to small businesses, taking the loans as collateral at face value.  (See story below on The Roundtable’s 8-point reform plan for the PPP).
  • Yesterday’s actions by the Fed recognize that businesses vary widely in their financing needs – and input from lenders, borrowers, and other stakeholders until April 16 is welcome through a Federal Reserve feedback form.

The Fed’s response to the pandemic is the focus of an April 8 Chicago Economic Club discussion moderated by Roundtable Chair Debra Cafaro (Chairman and Chief Executive Officer, Ventas, Inc.) with Charles Evans, President and CEO of the Federal Reserve Bank of Chicago. (Watch interview on Youtube)

As part of the rapidly evolving developments related to the COVID-19 pandemic, The Real Estate Roundtable continues to be proactive on all policy fronts in Washington to provide insight and recommendations to lawmakers and regulators.  The Roundtable depends on the input and expertise of its dedicated members, including those serving – now remotely – on the organization’s Real Estate Capital Policy Advisory Committee (RECPAC).

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Phase 4 Congressional Package May Provide Additional Direct Relief; Roundtable Urges New Pandemic Recovery Fund and Clarifications to Small Business Loan Issues

Posted on by Trey Jackson

 

House Speaker Nancy Pelosi (D-CA)

Leading policymakers floated ideas on a “Phase 4” coronavirus relief package this week immediately after the CARES Act (Phase 3) was signed into law last Friday.  (Roundtable Weekly, March 27)

  • House Speaker Nancy Pelosi (D-CA) adjusted her messaging from earlier in the week that another massive legislative package should include economic recovery projects such as infrastructure improvements.  Today, she emphasized Phase 4 should provide additional direct payments to individuals and expanded loans for businesses. (CNBC, April 3)
  • “I think right now we need a fourth bipartisan bill—and I think the bill could be very much like the bill we just passed. So I’d like to go right back and say ‘let’s look at that bill. Let’s update it for some other things that we need,’ and again put money in the pockets of the American people,” Pelosi told CNBC’s Squawk on the Street today.  She added, “While I’m very much in favor of doing what we need to do to meet the needs of clean water, more broadband and the rest of that,that may have to be for a bill beyond this.”
  • On March 31 a broad-based business coalition, including The Real Estate Roundtable, urged President Trump and congressional leaders to establish a COVID-19 Business and Employee Continuity and Recovery Fund.  (Coalition comment letter, March 31)
  • The proposed Recovery Fund would provide additional liquidity for impaired industries and businesses to avoid an unprecedented systemic, economic crisis.  The coalition states the establishment of the Fund is necessary to supplement lending expansion efforts included in the $2.2 trillion CARES Act.  (Roundtable Weekly, March 27)
  • The coalition letter states, “Without broad-based and expeditious federal action, long-term damage to the financial markets, rampant unemployment, and irreparable harm to communities are almost certain.”
  • Additionally, Roundtable President and CEO Jeffrey DeBoer yesterday wrote to Treasury Secretary Steve Mnuchin and Small Business Administration (SBA) Adminstrator Jovita Carranza urging the release of important clarifications to small business loan issues included in last week’s CARES Act.  (Payroll Protection Program letter, April 2)
  • The Payroll Protection Program (PPP) included in the CARES Act provides an additional $367 billion to SBA to assist small businesses and contains a number of provisions aimed at granting temporary regulatory relief.  (Top-line overview of the program and PPP Interim Final Rule)
  • The April 2 letter recommends 13 principles and clarifications to PPP based on questions from Roundtable members who are trying to determine whether their businesses are eligible under the new loan program.  The letter requests that Congress’s intent should be implemented by providing as much loan assistance as possible to as many small businesses as possible.
  • Late yesterday, Treasury issued an update to its PPP Borrower Application Form. (Treasury Dept Assistance for Small Businesses webpage and The Roundtable’s Coronavirus webpage resources.)
  • Today, the launch of the Payroll Protection Program was met with widespread reports about chaotic attempts to use the PPP portal – unprepared banks not accepting applications; confusion about the need to revise loan applications; and the SBA website  crashing from heavy demand.  (Politico, April 2 and Axios, April 3)
  • However, GlobeSt reported today that anecdotal examples show retail tenants are taking a positive stance in negotiations with landlords.   “Tenants and landlords are being proactive and cooperative with each other, although there have been exceptions with some tenants engaging in hardball with their landlords,” according to the April 3 article.

For the business community, a number of financial programs are available from the CARES ACT, depending on how many workers are employed by a given business concern. See Roundtable summaries of provisions that target:

As negotiations begin on a framework for a Phase 4 relief package between the House of Representatives and the Administration, the Senate is scheduled to return from recess on April 20.  The Roundtable will remain engaged at all levels and offer timely policy alerts as the coronavirus crisis continues to unravel.

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Roundtable Launches Covid-19 Call to Action, Intensifies Legislative and Regulatory Outreach; Debuts Video Blog on Pandemic Policy Efforts

Posted on by Trey Jackson

Jeff DeBoer Video Blog 1 x475 edit

The Real Estate Roundtable today debuted a Covid-19 Video Alert, detailing how the industry has switched into high gear, focused on legislative and regulatory policies aimed at repairing frozen liquidity conditions that threaten the entire American economic system.  (Watch Covid-19 Call To Action)

  • The Roundtable’s Chair, Debra Cafaro (Chairman of the Board and Chief Executive Officer of Ventas, Inc.) and President and CEO Jeffrey DeBoer present the organization’s wide-ranging, intensive efforts with policymakers and regulators in Washington, all aimed at stabilizing the far-reaching economic shockwave unleashed by the pandemic.
  • The Roundtable’s Board of Directors has quickly responded to the crisis by charting a policy advocacy course in Washington – matched by immediate action by Roundtable policy advocacy committees, which have recently analyzed and worked on multiple policy recommendations in the tax and capital & credit areas.
  • Today’s video blog features Cafaro and DeBoer launching the industry call to action.  DeBoer states, “It is the view of The Real Estate Roundtable that our industry, each one of us, must become much more active and aggressive in pointing out the dangers that lurk ahead. We must communicate the connectivity of our industry to jobs, pension and 401K returns, communities and more.”  He adds, “When economic hardships strike, our industry has historically worked tirelessly to help find a positive path forward. We must do that again.”
  • DeBoer explains how the nationwide cessation of income brought on by the outbreak, which now presents new, significant obstacles to economic recovery once the coronavirus is brought under control.
  • He also notes how the severe interruption of residential and commercial rental and mortgage payments – along with eviction moratoriums and a growing rent holiday advocacy movement – is contributing to dysfunction in the credit markets and freezing liquidity.  DeBoer explains how this market freeze will eventually disturb the expected income of millions of people living on pensions and other retirement funds.
  • “The financial system must facilitate positive action to allow issues to be worked out without penalty and without temporarily following strict enforcement guidelines that were written for normal times but that now threaten, in a pro-cyclical way, to make credit markets worse,” DeBoer states.
  • The vlog continues with reports from three Roundtable policy specialists on:

The Coronavirus Aid, Relief and Economic Security (CARES) Act expansion of the Small Business Loan Program, which attempted to begin today, and the urgent need to change and clarify its qualification rules;

Regulatory forbearance efforts and new credit facilities recently established by the Federal Reserve, including the Term Asset-Backed Securities Loan Facility (TALF);

Tax measures passed in the CARES Act, including a new a five-year carryback period and temporay repeal of the 80% limitation for net operating losses (NOLs) from 2018, 2019 and 2020.  Other tax priorities discussed included administrative relief for like-kind exchanges and a tax exemption for debt forgiveness.

Future video blog reports will feature Roundtable senior policy staff, Roundtable member guests and Members of Congress. We will continue to inform and engage policymakers and CRE stakeholders about how Washington is responding to the industry – and how The Roundtable and its  industry trade association partners plan to meet the challenge ahead, together. 

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

Posted on by Trey Jackson

Trump Signs CARES x475w

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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