Roundtable Weekly -- May 8, 2020

Coronavirus Response

Policymakers Float Measures for Next COVID-19 Relief Package; Senators Propose Changes to Paycheck Protection Program’s “75/25 Rule”; Democrats Introduce $100 Billion Emergency Rental Assistance Bill

U.S. Capitol Dome

House Democrats are developing another massive coronavirus aid package as they consider when to return to Washington for a vote – while Republicans have signaled they prefer to pause any negotiations on future pandemic aid until the effectiveness of current programs can be evaluated.  (Wall Street Journal, May 7) 

  • House Speaker Nancy Pelosi (D-CA) has stated her goals for the next round of pandemic relief, which include $800 billion in funding for state and local governments, in addition to unemployment support, direct payouts, Covid-19 testing and more.  (Bloomberg, April 30 – AP, May 5 – Bloomberg TV,  May 7)

  • Senate Minority Leader Charles Schumer (D-N.Y.) told MSNBC yesterday, “We need Franklin Rooseveltian-type action and we hope to take that in the House and Senate in a very big and bold way.”

  • White House National Economic Council Director Larry Kudlow today said, "We've kind of paused as far as formal negotiations go. Let's have a look at what the latest round produces. You need a month or so to evaluate that.”  (Roll Call, May 8)

  • Kudlow’s remarks follow Senate Majority Leader Mitch McConnell’s (R-KY) statement earlier this week that Congress should "take a pause” before passing more pandemic relief legislation.  (The Hill, May 5)

  • Kudlow added, "The president, as you know, has put out a number of his own policy ideas, payroll tax cuts being one of them, and … COVID-19 liability restrictions for businesses."  Kudlow also highlighted proposals to promote restaurant and travel spending, as well as allowing businesses to quickly write off their expenses as they reopen.  (CQ, May 8) 

Roundtable Pandemic Policy Communications Outreach 

  • Jeffrey DeBoer, President and CEO of The Real Estate Roundtable, on May 6 participated in the Urban Lab Podcast to discuss the pandemic’s ongoing impact on CRE, The Roundtable's recommendations for reforming the PPP, the merits of a Pandemic Risk Insurance Act similar to TRIA, the “rent obligation chain,” and the organization’s broader engagement with policymakers.  Dr. Sam Chandan, Silverstein Chair of the NYU SPS Schack Institute and Fellow at the NYU Urban Lab, hosted the podcast. (Interview with DeBoer, May 6)

  • DeBoer also participated in a Bisnow webinar last week to discuss the government’s legislative and regulatory responses to the economic impact of the coronavirus pandemic.  (Bisnow recap, May 4 and Roundtable Weekly, May 1)

  • The Roundtable’s Senior Vice Presidents on May 5 participated in “The Policy Response to COVID-19: Implications for Real Estate” – hosted by the Pension Real Estate Association (PREA).  The supporting slides for the PREA webinar offer extensive details to various issues related to the PPP, tax changes and actions by the Federal Reserve. (Download slides

Small Business Aid and Rent Assistance 

  • Loan demand for the Paycheck Protection Program (PPP) was expected to quickly diminish the program’s supplemental funding that became available April 27.  Yet, more than 40 percent of the aid remains unused according to data released by the Small Business Administration yesterday. (Wall Street Journal, Demand for Small-Business Loans Cools, May 8) 
  • Lenders and participants say that reasons for the slowdown in demand include the reluctance of small businesses to sign up for a program whose loan forgiveness terms remain unclear.  To obtain forgiveness of a loan, agency rules implementing the PPP require small businesses to spend 75% of funds on payroll (and no more than 25% of PPP proceeds or forgiveness can be devoted to rent, mortgage interest, utility bills, and other debt obligations).

  • The Roundtable’s 8-Point Plan to Reform the PPP recommends that SBA and Treasury should not apply the 75/25 rule as a categorical “one size fits all” standard that limits PPP assistance, in all cases, to no more than 25% for business rent and other ordinary expenses.

  • This week, a broad bipartisan group of Senators led by John Cornyn (R-TX) proposed changing the 75-25 rule to a 50-50 rule – where up to 50% of PPP loan proceeds can be used by qualifying small businesses to pay rent, mortgage and utilities.  (Cornyn letter, May 5)

  • Sen. Cornyn and 20 other Senators urged Secretary of the Treasury Steven Mnuchin and Small Business Administration Administrator Jovita Carranza to “exercise the power of your respective offices to ensure all business sectors are able to spend at least 50 percent of the loan proceeds on the statutorily allowed non-payroll expenses.”

  • Senate Finance Committee member Cornyn on May 5 also introduced The Small Business Expense Protection Act of 2020, which would modify the CARES Act to allow business owners to claim tax deductions for ordinary business expenses, regardless of whether they were paid with a forgiven PPP loan.

  • Additionally, legislation introduced today would create a $100 billion emergency residential rental assistance fund. The Emergency Rental Assistance and Rental Market Stabilization Act of 2020 was introduced by Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, and Senator Sherrod Brown (D-OH), Ranking Member of the Senate Committee on Banking, Housing and Urban Affairs. (House Financial Services Committee news release and bill summary.)

  • Earlier this week, The Roundtable’s Jeffrey DeBoer was quoted in GlobeSt.com about the need for a program to help both residential and business tenants with temporary, emergency rental assistance. DeBoer said, “While the focus on employment has been necessary and effective, there is presently no COVID-19 response program with the primary goal of assisting American families and businesses in meeting their obligations to pay rent, mortgages, and other ordinary debts and expenses.” (GlobeSt, May 5)

  • DeBoer added, “No landlord wants to evict a tenant, and most are working proactively with their tenants to make payment plans and reduce tensions. Without rental income, such actions disproportionately impact smaller landlords and pummel a city’s property tax collections by sending buildings into foreclosure. Ultimately, it would affect municipal workers who will lose their jobs—including teachers, police and firefighters.”

  • The "rent obligation chain" and its crucial role to support the economy and the CRE sector was also illustrated in a March 24 Wall Street Journal article, “Businesses Can’t Pay Rent. That’s a Threat to the $3 Trillion Commercial Mortgage Market.” 

The pandemic’s ongoing impact on CRE and Washington’s policy responses will be a major focus of The Roundtable’s first virtual Annual Meeting, which will be held remotely on June 11-12. 

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COVID-19 & Building Re-Entry

Roundtable Interview Addresses Healthy Building Operations as Governments Develop Economic Re-Opening Plans

 

Book Covers - Healthy Buildings

With states and cities beginning to re-open economic sectors, what should building owners and managers consider to safely manage the reentry of tenants, workers and visitors?  This was the topic of an interview conducted this week by Real Estate Roundtable President and CEO, Jeffrey DeBoer, 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)

  • He was inspired at a Roundtable Sustainability Policy Advisory Committee (SPAC) meeting to assemble a report that eventually became “The 9 Foundations of a Healthy Building.”  The publication “takes 40 years of scientific evidence, distills it down to those key factors or features that we know relate to better employee health, improved productivity and help reduce infectious disease transmission.”    
  • Building stakeholders could implement a health safety plan using “a five-step hierarchy of controls” detailed in his April 29 Harvard Business Review article, “What Makes an Office Building ‘Healthy’

  • Healthy building metrics can contribute to building valuation.  “Start measuring … health performance indicators. Capture all those gains.” He gives a specific marketplace example featured in an April 28 Harvard Business Review podcast case study, “A Tower for the People: 425 Park Avenue.”   

  • There is increased market interest in healthy buildings, especially in light of the fallout from the global pandemic. “This healthy building movement, just like working from home and teleworking, have been slowly rising – and with COVID, it has forced a massive quickening of these movements.”  (Watch interview, May 6)
  • Resources:

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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Tax Policy

IRS Grants REITs Pandemic Relief; Lawmakers Challenge Tax Rules for PPP Loans and Request Greater Flexibility for Opportunity Zones

Several tax policy issues affected by the coronavirus pandemic were the focus of policymakers’ attention this week in Washington, including:

Regulatory Relief for REITs

  • The IRS on March 4 granted relief with respect to distributions that publicly traded REITs must make to their shareholders in order to retain their single-level, preferred tax treatment.   The new guidance temporarily lowers the minimum percentage of shareholder dividends from these investment vehicles that must be made in cash from 20% to 10%.   The agency granted similar relief during the 2008 financial crisis.   
  • IRS Revenue Procedure 2020-19 is effective for distributions made by REITs on or after April 1, 2020 and on or before December 31, 2020.  According to the IRS, the guidance was issued to enable REITs to conserve capital and thereby enhance their liquidity.

  • Nareit wrote to the Treasury Department on March 8 seeking the change.  “The current COVID-19 has significantly impacted all REITs, but most severely in the lodging, retail, and health care sectors.  Many REITs have reduced their dividends because the rents they expect to receive are declining dramatically because of the restrictions put in place or suggested by federal and state authorities,” according to Nareit’s letter

Congress Challenges Treasury on Tax Aspects of PPP Loans

  • Congressional leaders are questioning a recent notice from the IRS prohibiting taxpayers from deducting business expenses paid with loans from the $670 billion Paycheck Protection Program if the loans are subsequently forgiven (see IRS Notice 2020-32, April 30).

  • The chairmen of the House and Senate tax-writing committees sent two letters this week to Treasury Secretary Steve Mnuchin urging him to reconsider the Department's interpretation, which significantly reduces the economic benefit of the loan forgiveness for the borrower.  

  • House Ways and Means Chairman Richard Neal (D-MA), Senate Finance Chairman Chuck Grassley (R-IA) and Sen. Ron Wyden (D-OR), the Finance panel’s top Democrat, wrote that Treasury and the IRS’ position defies lawmakers’ intentions when they passed the CARES Act.  "We believe the position taken in the Notice ignores the overarching intent of the PPP, as well as the specific intent of Congress to allow deductions in the case of PPP loan recipients," the lawmakers stated in their letter to Sec. Mnuchin. 

  • Yesterday, Treasury responded to the lawmakers’ May 5 letter, acknowledging the agency guidance (Notice 2020-32), and that it would “follow up” with Grassley’s office on the matter.  
  • Additionally, Sen. John Cornyn (R-Texas) on May 6 led a group of Senators in introducing the Small Business Expense Protection Act, which would clarify the PPP so small businesses can deduct expenses paid with a forgiven PPP loan from their taxes. 

Covid-19 Relief for Opportunity Zones

  • Sen. Tim Scott (R-SC) and eight other Senate Republicans wrote to Treasury Secretary Mnuchin  and IRS Commissioner Rettig on May 4 asking Treasury Department and the IRS to consider several regulatory recommendations aimed at providing flexibility to Opportunity Zone businesses and investors in response to the coronavirus pandemic.   

  • National estimates show approximately $67 billion has been pledged towards investments in Opportunity Zones, with $10 billion in equity already raised.  (Sen. Scott news release.  May 4)    
  • The Senators are encouraging 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 May 4 letter continues, “Relief focused on giving stakeholders, projects, and businesses additional time and flexibility to meet Opportunity Zone requirements, timelines, and thresholds will enable Opportunity Zone businesses to weather the storm and be part of the robust post-COVID economic recovery.” 

The Roundtable continues to be a strong supporter of the Opportunity Zones program as a powerful catalyst for transformational real estate investment in designated low-income areas.

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