Roundtable Weekly -- May 15, 2020
House Democrats Expected to Pass $3 Trillion Covid-19 Stimulus Package; Fed Chair Says Additional Fiscal Support Needed to Avoid Long-Term Economic Damage
The House of Representatives’ Democratic majority is expected to pass tonight the largest financial stimulus bill in U.S. history to combat the ongoing economic fallout related to the coronavirus pandemic. (H.R. 6800, Health and Economic Recovery Omnibus Emergency Solutions Act [“HEROES”] Act: one-pager; section-by-section; state and local relief summary.)
- The $3 trillion HEROES Act is considered a marker for Democratic priorities in negotiations with the Republican-controlled Senate and the White House. The bill has been declared “dead on arrival” by Senate Majority Leader Mitch McConnell (R-KY). (The Hill, May 12)
- Since March, Congress has passed four Covid-19 response packages totaling $2.9 trillion. (Roundtable Weekly March 6, March 20, March 27, and April 24)
- President Trump said he is in “no rush” to negotiate another financial rescue bill, while McConnell doesn't plan to move forward on another economic relief bill until June at the earliest, according to a Senate Republican aide. (Time-AP, May 9 and Bloomberg, May 13)
- The HEROES Act would combine $950 billion in aid to state and local governments with direct cash payments, expanded unemployment insurance, support for health care testing and food stamps – along with funding for a list of non-virus related measures such as the U.S. Postal Service and vote-by-mail initiatives. (Forbes, May 12).
- The HEROES Act would also temporarily eliminate the limitation on the deduction for State and local taxes, which was originally passed in 2017’s Tax Cuts and Job Act. (Associated Press, May 12 and CBS News, May 13)
Proposed Legislative Changes to the Paycheck Protection Program
The House bill also includes revisions to the Paycheck Protection Program (PPP) although it does not seek additional funding for more small business loan capacity.
- The HEROES Act would remove the cap that no more than 25% of PPP loan amounts could be forgiven for non-payroll business expenses, such as rent or mortgage interest. On May 11, Treasury Secretary Steven Mnuchin told CNBC the Trump administration is sympathetic to changing the so-called “75/25 rule” that 75% of PPP proceeds must be used for payroll and benefits. “We will look at a technical fix,” Mnuchin said. (CNBC transcript, May 11)
- The Roundtable’s 8-Point Plan to Reform the PPP recommends that Treasury and the Small Business Administration (SBA) should not apply a 75/25 rule as a categorical “one size fits all” standard that limits PPP assistance to help business meet their rent obligations and pay other ordinary operating expenses.
- The HEROES ACT would also change the PPP requirement that the “forgiveness” period for loans would extend to 24 weeks after origination (from the March 27 CARES Act’s current 8-week limitation). (House Small Business Committee summary of the proposed changes to the PPP program and EY Tax News, May 13)
- In other PPP news, a federal court in Michigan declared SBA’s “Ineligibility Rule” invalid in a broad ruling that respects the CARES Act’s text that Congress intended for “any business” with 500 employees or less to be eligible for PPP loans. (May 11 decision in DV Diamond Club of Flint LLC v. SBA, E.D. Mich., No. 20-cv-10899)
- Treasury and SBA release updated rules and guidance implementing the PPP on an ongoing basis. (U.S. Treasury’s PPP resources page)
Federal Reserve Chair Powell Supports More Fiscal Relief
Federal Reserve Chair Jerome Powell on May 13 gave remarks on current economic issues, warning that a prolonged recession could take hold unless additional fiscal aid was devoted to bolster the economy as it reels from the impact of the coronavirus pandemic. (Video of Powell’s remarks)
- Powell noted Congress has already provided $2.9 trillion to battle a downturn “without modern precedent, significantly worse than any recession since World War II.” He added, “While the coronavirus economic shock appears to be the largest on record, the fiscal response has also been the fastest and largest response for any postwar downturn.”
- The Fed has also taken action with “unprecedented speed and force” by slashing interest rates and purchasing Treasuries and agency mortgage-backed securities to restore functionality in critical markets.
- He warned these actions may not be enough, stating that there is “a growing sense … that the recovery will come more slowly than we would like. We ought to do what we can to avoid these outcomes, and that may require additional policy measures.”
- Powell drew attention to policy makers’ next steps in Washington since “the recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems.”
As Congress begins its debate over the next coronavirus package, the Fed Chairman concluded his remarks by stating, “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.”# # #
Senate Committees Consider Workplace Reentry, Business Liability and Financial Regulations
Senate committee hearings on May 12 addressed Covid-19 issues including reopening businesses and schools, legal liability for businesses, and the role of financial regulations in combatting the economic repercussions of the pandemic.
A “new normal” for congressional hearings was on display as social distancing and remote testimony were put into effect, with lawmakers and witnesses meeting through video conferences to maintain social distancing protocols.
- The health risks associated with reopening places of work, education and recreation were explored during the Senate Health, Education, Labor and Pensions Committee hearing, "COVID-19: Safely Getting Back to Work and Back to School."
- Dr. Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases, testified that returning too quickly could “turn the clock back, rather than going forward” on the road to economic recovery. (Stat, May 12)
- According to Politico, a dozen states will see their stay-at-home orders or business restrictions expire between today and Monday (May 15 to May 18) at the same time other states surpass the two-week point since reopening. Updated reports on reopening status are available from CNN and the New York Times.
- The U.S. Chamber of Commerce has developed an interactive state-by-state map of re-opening guidance policies.
- The Centers for Disease Control and Prevention posted new one-page “decision tool” guidance documents on Thursday that advise businesses, restaurants and bars, mass transit systems, and other concerns on how to safely reopen during the pandemic.
- Potential employer immunity and anticipated litigation related to Covid-19 were the focus of a Senate Judiciary Committee hearing on Tuesday, "Examining Liability During the COVID-19 Pandemic."
- Republicans and Democrats expressed that enforceable federal guidelines from the Occupational Safety and Health Administration (OSHA) or Centers for Disease Control and Prevention (CDC), outlining proper health, safety, cleaning and other procedures, would likely be necessary to set standards for business conduct. Senators also acknowledged that potential plaintiffs asserting liability claims would likely confront challenges in establishing that a business’s actions directly caused a Covid-related injury. (Brownstein Hyatt Farber Schreck, May 14)
- “One primary goal out of this hearing is to get the standards in place for business, for universities, for schools, whether they come from the CDC [or] OSHA,” Chairman Lindsey Graham (R-SC) said at the hearing. Standards are needed so businesses “can understand what’s expected of them. And if they do what’s expected, they don’t need to worry about getting sued. The big hole in the puzzle right now is the standard,” (The Hill, May 12)
- The Judiciary hearing followed prior statements on employer liability from Republican congressional leaders that “these protections will be absolutely essential to future discussions surrounding recovery legislation” and that any coronavirus stimulus package will not pass the Senate without addressing business liability. (Roundtable Weekly, May 1)
- The Senate Banking Committee hearing on “Oversight of Financial Regulators” focused on the effectiveness of recent financial regulatory actions implemented to combat the economic impact of the pandemic.
- Lawmakers shared the sentiment that more could be done by U.S. financial regulatory agencies to broaden the availability of various lending facilities put into effect to get more capital to businesses and communities in need.
- During the hearing, Fed Vice Chairman for Supervision, Randy Quarles, responded to questions on the need for expanding the Fed’s Term Asset-Backed Securities Loan Facility (TALF) by saying there were no “specific changes to suggest” at this time, but that the Fed was “very sensitive to that.”
- The Roundtable joined industry letters to the Fed on March 24 and April 14 on the need to broaden the range of the TALF to include both outstanding (legacy) CMBS, commercial mortgage loans and newly issued collateralized loan obligations. On April 9, the Fed confirmed that the TALF would be expanded to include triple-A rated legacy non-agency CMBS and loans.
- The Fed on May 12 also broadened the range of leveraged loans that can be used as collateral for the TALF. The Fed will now accept new Triple-A rated collateralized loan obligations (CLOs) with leveraged loans, including refinanced loans and priced as far back as January 2019, as part of the TALF. (Fed news release and Wall Street Journal, May 12)
Today, a business coalition including The Real Estate Roundtable wrote to financial regulators requesting they clarify their April 7 guidance encouraging financial institutions to work constructively with borrowers impacted by COVID-19. Specifically, the coalition requests clarification that – in addition to traditional loan products – lending and financing arrangements, such as warehouse lines and repurchase agreements secured by multifamily and commercial real estate loans and commercial mortgage-related securities, are within the scope of the guidance in the Statement. (Coalition letter, May 15)# # #
Roundtable Members Address Workplace Return Strategies and Technology
Roundtable members addressed the challenges and techniques in reopening the workplace in a variety of media outlets this week.
- On May 13, Roundtable Chair Debra Cafaro (Chairman & CEO, Ventas) discussed the steps being taken by the City of Chicago towards reopening with Mayor Lori Lightfoot as part of The Economic Club of Chicago’s virtual program series. The discussion also covers the city’s response to the COVID-19 pandemic and other aspects of Mayor Lightfoot’s first year in office. (Video: Mayor Lightfoot’s Prepared Remarks: 00:45 – 29:30, followed by Q&A with Debra Cafaro: 29:30 – 54:00)
- Roundtable Immediate Past Chair Bill Rudin (Co-Chairman & CEO, Rudin Management Company, Inc.) today joined CNBC for a conversation about the path forward for reopening office space in New York City as employees work from home amid the coronavirus pandemic. Rudin, above, discussed his building operating system called Nantum, which tracks real time data on metrics like indoor air quality, energy usage, temperature and carbon dioxide. Rudin also commented on the need for state and local stimulus funding from Congress to support the basic functions of municipalities that will help economic recovery. (CNBC video, May 15)
- Roundtable member Scott Rechler (Chairman and CEO, RXR Realty) yesterday participated in a webinar hosted by Axios’ Mike Allen on reopening the economy and the future of workplace safety. (Axios webinar, May 14). Rechler discusses a “Leap to Labor Day” project for his company that will rotate employees back to offices on a staggered time basis to avoid congestion. (Watch Axios webinar)
- Roundtable Board Member and Sustainability Policy Advisory Committee Chair, Tony Malkin (Chairman and Chief Executive Officer, Empire State Realty Trust, Inc.), was quoted this week in a New York Times article on the challenges Manhattan owners and developers may face if the change in work environments evolves from buildings to homes. He added that New York City’s diverse and educated work force will drive an economic rebound and desire for office space that caters to large industries, including a fast-growing technology sector. (New York Times, “Manhattan Faces a Reckoning if Working From Home Becomes the Norm,” May 12)
- Real Estate Roundtable President and CEO, Jeffrey DeBoer, discussed what building owners and managers should consider to safely manage the reentry of tenants, workers and visitors in an interview last week with Dr. Joseph Allen, Assistant Professor at Harvard’s T.H. Chan School of Public Health and Director of its Healthy Buildings Program. (Video, May 6)
The Roundtable's Building Re-Entry Working Group continues to meet weekly to address issues associated with the restarting of the economy.
Operations and performance standards for healthy buildings will be a topic discussed during The Roundtable’s virtual Annual Meeting on June 11-12, which will include remote events for both business and policy advisory committee meetings.
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Industry Coalition Urges Congress to Consider Opportunity Zone Rule Changes to Spur Investment in Hard-Hit Communities
An 11-member industry coalition, including The Real Estate Roundtable, urged Members of Congress on May 14 to consider Opportunity Zones (OZ) rule changes that could spur investment, promote capital formation and bolster job growth in economically disadvantaged communities impacted by the coronavirus pandemic. (Coalition letter, May 14)
- Opportunity Zones seek to stimulate jobs and growth where they are most needed by encouraging taxpayers to make long-term, patient investments in targeted, low-income communities. On Thursday, Federal Reserve Chairman Powell reported that “among people who were working in February, almost 40 percent of those in households making less than $40,000 a year had lost a job in March.” (Chairman’s Prepared Remarks, May 13)
- The coalition letter asks Congress to make three critical improvements to the Opportunity Zone incentives. The changes would:
- Allow opportunity funds to raise capital from all sources, not just gain rolled over from a recently disposed investment.
- Spur productive real estate investment in low-income communities by providing that a 50 percent increase in the basis of a building constitutes a substantial improvement of the property.
- Strengthen the economic incentives by codifying the tax rate on deferred gain and extending for two years the recognition date for deferred gain, and consequently, the deadlines that must be met in order to qualify for the increase in basis for gain rolled into an opportunity fund.
- The coalition’s legislative suggestions come not long after Sen. Tim Scott (R-SC) and eight other Senate Republicans made several regulatory Opportunity Zone recommendations on May 4 in a letter to Treasury Secretary Mnuchin and IRS Commissioner Rettig. (Roundtable Weekly, May 8)
- The Senators encouraged 10 specific changes in their letter, which states, “Significant challenges arise from the inability to raise capital; decreased demand for space, products and services; a decline in the local economy; governmental delays; supply chain interruptions; and uncertainty regarding valuations and ability to secure loans and necessary funding apart from Opportunity Zone capital gain investments.”
The role of investment in Opportunity Zones may be addressed in eventual Covid-19 stimulus legislation in Congress. The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue to collect and share information regarding with policymakers regarding the real estate industry’s experience with the Opportunity Zone tax incentives and the impact on low-income communities of real estate-focused opportunity funds.
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Jim Didion, Real Estate Pioneer, Ex-CBRE CEO, National Realty Committee Chair Emeritus
James Jerrett Didion (Jim) – a pioneer in commercial real estate who served as CEO of CB Richard Ellis and as former Chair of The National Realty Committee (predecessor of The Real Estate Roundtable) – passed away on April 2.
- “Jim Didion was a driving force not only in the commercial real estate industry – his decades of invaluable public service included work on the National Realty Committee (NRC), the predecessor organization that became The Real Estate Roundtable in 1999,” said Jeffrey DeBoer, Roundtable President and CEO. He added, “Jim joined NRC in 1972, served in a variety of policy advisory roles for years, including as Chairman from 1993 to 1996 and beyond as NRC Chair Emeritus. He will always be remembered as a selfless contributor to the common good of the industry, the country and his community.”
- His real estate career began at Coldwell Banker Commercial, where he rose to become CEO and Chairman of CB Richard Ellis, leading the firm's growth from $400 million in annual revenues in 1986 to more than $1 billion in 1999. Mr. Didion has been widely recognized as a pioneer in building a global, fully integrated, professional services business and credited with leading CB to its position as the largest commercial real estate company in the world.
- Mr. Didion consulted on real estate issues to the Chancellor of the University of California at Berkeley and served on the advisory board of the Fisher Center at the Haas Business School, as trustee of Community Hospital of the Monterey Peninsula and as National Real Estate Consultant to the U.S. Olympic Committee.
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