Some Initial Takeaways on How the $2T Stimulus Helps CRE

After days of rancorous negotiations, the U.S. Senate unanimously approved a $2 trillion+ economic stimulus bill aimed at helping the American economy navigate an unprecedented shock. The House appeared poised to pass the legislation on Friday and President Trump has promised to sign the bill as soon as it reaches his desk.
It could not come at a more pressing time. On Thursday morning the Department of Labor reported that initial jobless claims soared to a seasonally adjusted 3.28 million in the week ended March 21.

The bill is broken into several parts, with hundreds of billions allocated towards direct cash payments to most Americans and to vastly expanding unemployment benefits to be more generous and cover more classifications of workers. That alone will be beneficial, for example, by helping apartment tenants pay their rents.
And within the bill are specific measures that will provide some benefits to the commercial real estate sector.
Here are some initial takeaways based on early analysis and reaction to the bill.

• NAIOP outlined some of the provisions that will help the space. The organization pointed out that the bill “provides a technical correction to the Qualified Improvement Property (QIP) depreciation drafting error from the 2017 Tax Cuts and Jobs Act that resulted in a 39-year depreciation period for QIP, rather than making it eligible for immediate expensing. This correction is a top NAIOP federal priority and its inclusion is a result of our efforts over the last two years.” Previously, this deduction would have been spread over 37 years. So this allow an acceleration of write-offs on expenses for any recent renovations. A New York Times analysis estimated the change in depreciation rules could amount to an $170 billion tax break for real estate investors.
• In addition, NAIOP pointed out that the bill allows five-year carryback of net operating losses for non-REIT businesses for 2018, 2019 and 2020. It also increases the limitation on deductible business interest from 30 percent to 50 percent of EBITDA for 2019 and 2020.
• Meanwhile, the New York Times pointed out that there is a section of the bill with the title “Business Concerns With More Than 1 Physical Location.” The section changes here apply to companies that fit “a North American Industry Classification System code beginning with 72”—the code that applies to the hotel and restaurant industries.
• According to the Times, “The provision says that if a company owns multiple hotels, even if the overall hotel or restaurant chain has more than 500 employees—the limit to qualify for treatment as a small business—it will still be able to take advantage of the small-business benefits offered in the rescue package. The Times reported that “representatives from the American Hotel & Lodging Association reached out to Republicans and Democrats to push them to insert the language, arguing that it would allow the federal assistance to cover an additional 33,000 hotels.”
• The bill provides federally guaranteed loans from community banks to small businesses that pledge not to lay off their workers—something that could be a great benefit to many commercial real estate tenants. The loans would be available during an emergency period ending June 30. The loans would be forgiven if the employer continued to pay workers for the duration of the crisis.
• The Mortgage Bankers Association lauded the passage of the bill and MBA President and CEO Bob Broeksmit said in a statement, “Importantly, this legislation includes funding that can be leveraged to create a broad, dedicated Federal Reserve liquidity facility. It is critical that the Federal Reserve and U.S. Treasury swiftly establish a financing program to help some mortgage servicers provide the unprecedented levels of mortgage payment forbearance required under the legislation to help homeowners facing COVID-related hardships.”
• Meanwhile, the Associated General Contractors of America (AGCA) put out a statement saying the provisions would help construction firms, but also advocated for additional measures.
• “Specifically, Congress must provide financial compensation for losses incurred on federally funded projects because of COVID-19 related delays and cancellations. Congress also needs to increase investments in infrastructure and pass needed multi-year funding measures for surface transportation and waterways. And Congress must act to protect the retirement and health plans of millions of construction workers who participate in multi-employer pension programs.” AGCA President Stephen E. Sandherr said in a statement. “The industry will not be able to truly recover until federal officials pass measures designed to stimulate new demand for construction, make contractors whole for losses incurred because of the coronavirus and protect employee retirement and health plans.”

By: David Bodamer (NREI)
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