It is the first day of May, and in normal times the rent would be due again. But these are far from normal times, and in many cases the likelihood that rent will actually be paid (or paid in full) is quite low. As tenants search their couches for loose change, landlords scramble to pay their mortgages and pressure mounts throughout the system. One way to alleviate this pressure would be to implement a comprehensive framework that sets clear standards and expectations for lenders and borrowers as well as landlords and tenants.
While a comprehensive framework still remains theoretical, real efforts have been made to reduce the fallout from this virus-induced economic slowdown. For example, the State of Oregon declared a rent default moratorium for residential and commercial tenants via Executive Order on April 1, 2020. Other states have made similar decisions, with California and New York implementing similar moratoria and, in the case of Texas and South Carolina, state officials terminating eviction proceedings and stopping judicial foreclosures. All of these measures are critically important—particularly for tenants with limited means and leverage—and it would be a step even further forward to provide comprehensive guidance and rules of engagement for business entities navigating stormy waters.
A newly-formed coalition of Oregon business and real estate voices, United for Relief, is advocating for a “right to defer” rule for mortgage payments that would apply to all commercial real estate in Oregon and serve as a parallel to rent deferral under the Governor’s order. Amongst the policies supported by this coalition is a blanket deferral for all mortgage payments, including interest and principal, as well as a tool to prevent borrowers in default from incurring credit-rating penalties. The plan also calls for a timeline for potential extensions of a deferral program, if the coronavirus pandemic lasts longer than anticipated. All of these ideas are sensible and, most importantly, they avoid calling on the budget-ravaged state to redirect limited cash resources from low-income and unemployed Oregonians at risk of losing their housing.
A comprehensive approach to addressing short-term liquidity issues in the commercial real estate market would be a clear improvement over patchwork solutions and crossed-fingers. Oregon was wise to provide relief first for tenants struggling to make ends meet. However, tenant protection does not preclude a temporary mortgage deferral and credit-protection program in the commercial real estate world. Hopefully such a development is close to fruition.