Commercial Real Estate and the Coronavirus Stimulus Bill

On Wednesday evening the Senate passed a $2 trillion stimulus package. Below are some highlights relevant to commercial real estate:

  • $350 billion in federally guaranteed loans for small businesses that pledge not to lay off their workers. The loans would be forgiven if the employer continues to pay its workers through June 30. From a real estate perspective, this aid to small business is crucial for such businesses' ability to pay both their employees and other obligations, including rent.
  • In an effort to aid the hard hit hotel industry, the small business loans are also available to companies that own multiple hotels, even if the company is otherwise too large to qualify as a small business. As the New York Times notes, the large corporations that own brands like Marriott or Hilton would not be eligible, but since many hotels are owned by franchisees, individual hotels under those brands could be eligible.
  • Excludes from income the cancellation of debt related to new, emergency small business loans.
  • Provides cash payments of up to $1,200 to individuals earning less than $75,000 per year, before phasing out completely for those who earn more than $99,000 per year. Additionally, families would receive $500 per child.
  • Expands unemployment benefits for the next four months, and expands eligibility to include freelancers and so-called "gig workers" like Lyft drivers. These last two benefits will help ordinary Americans meet their financial obligations, and should help stabilize the multi-family market as a result.
  • Allows five-year carryback of net operating losses for businesses for 2018, 2019, and 2020 (other than Real Estate Investment Trusts (REITs)).
  • The hotel industry may also find some relief in the $500 billion loan guaranty fund created for corporate loans, but will be competing with other types of businesses for the loans – a far cry from the $150 billion direct funding the industry had lobbied for.
  • Includes the greatly needed technical fix to the depreciation error for Qualified Improvement Property in the 2017 tax bill discussed by my partner, David Petersen here. This corrects a problem that had been burdening developers and landlords who made significant tenant improvements since the tax bill was passed. But, this change was also sought by the hotel, restaurant, and retail industries
  • Increases the allowable business interest deduction from 30% to 50% of EBITDA (earnings before interest, taxes, depreciation, amortization) for 2019 and 2020.
  • Includes $25 billion in relief funding for public transit agencies, key to maintaining functioning transportation systems in urban areas.

The hope is that this stimulus will give individuals and businesses the liquidity boost they will need to get through what is expected by many economists to be a relatively short-term but large spike in economic distress, followed by a steady recovery. The House is expected to vote on the bill on Friday.

UPDATE: On March 27, the President signed the stimulus package, known as the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), into law.