The CARES Act – 5 Key Elements Every Commercial Real Estate Owner Should be Aware of

While the stimulus provided under the CARES Act targets to provide direct relief for individuals and answer broad market concerns about liquidity, many landlords and commercial owners are left asking the question – What about me? These are the 5 key elements every building owner should know.

Paycheck Protection Program (PPP)

An expansion of the Small Business Administration (SBA) designed to make $349 billion in potentially forgivable loans to businesses.

• Who Qualifies: Small businesses (<500 employees) as well as sole proprietors, independent contractors and self-employed individuals.
• Loan Amounts: Applicants can borrow up to 250% of their average monthly payroll costs (with certain exceptions), wages, commissions or net earnings from a sole proprietorship.
• Fund Usage: Proceeds allocated to retain workforce, meet mortgage or rent obligations, and pay utility services. Loan proceeds used outside of the prescribed guidelines will not be forgiven.
• How to Apply: Application and loans are processed with your bank directly and relief is being distributed on a first come, first serve basis.

Economic Injury Disaster Loan (EIDL)

A loan program funded directly by the SBA providing liquidity to small business impacted by the Coronavirus pandemic.

• Who Qualifies: Small businesses (<500 employees) as well as sole proprietors, independent contractors, non-profits and self-employed individuals who were in existence before January 31, 2020 and have suffered substantial economic injury caused by the pandemic.
• Loan Amounts: Applicants can borrow up to $2 million, typically with a longer maturity (up to 30 years) at a rate of 3.75% for businesses and 2.75% for non-profit organizations.
• Emergency Grant: Due to short term liquidity crisis posed by the pandemic, the SBA is offering eligible applicants an emergency grant of $10,000 within 3 days of a successful loan application. There is no obligation to repay the grant, even in the event of an unsuccessful application.
• How to Apply: Applications are submitted here, directly with the SBA.

Maintaining Liquidity in the Lending Markets

In an effort to avoid the inevitable “cash crunch” typically associated with periods of depressed economic activity, the Federal Reserve has allocated $454 billion of liquidity in the form of loans, loan guarantees, and investments to support continued lending. Through its extensive arm of credit facilities, the Federal Reserve will support the flow of credit to individuals and businesses through the banking system by purchasing loans or other interests from lenders and secondary markets, addressing strains in the markets for Treasuries and mortgage-backed securities.

Loan Modifications (CARES Act – Section 4013)

The CARES Act suspends the requirements under the generally accepted accounting principles (GAAP) for loan modifications that would otherwise be considered troubled debt restructuring. Loans in compliance as of December 31, 2019 can be modified on forbearance arrangement, interest rate, repayment plan and any similar arrangement that defers or delays the payment of principal or interest.

Tax Considerations

Eligible businesses may obtain or preserve liquidity by applying for income tax refunds and reducing current income taxes payable.

• Net operating losses (NOL’s) arising in the tax year beginning after December 31, 2017 and before January 1, 2021, generally may now be carried back 5 years. Businesses may be able to deduct additional interest expenses in taxable years beginning in 2019 and 2020.
• Employers may defer payment of the employer’s share of FICA taxes after two years, in addition to taking advantage of certain refundable payroll tax credits
• 1031 Like-kind exchanges: If an investor has taken the first step of a like kind exchange by selling the old property, and either the 45-day or the 180-day deadline falls between April 1 and July 15, the deadline has been extended to July 15.
• Opportunity Zones: If an investor who sold a capital asset planned to roll over the gain into an Opportunity Zone Fund and the 180-day deadline to do so falls between April 1 and July 15, 2020, he or she can make the investment as late as July 15.

Interested in learning more? Want to leverage these programs to position your property for a quick economic recovery? Give me a call.