Roundtable Weekly - March 20, 2020

Coronavirus Response

Policymakers Enact Second Coronavirus Response; Senate GOP Unveils Additional $1 Trillion-Plus Economic Package; Roundtable Urges Focused Policy Action



Policymakers raced this week to complete a massive economic response to stem the spiraling public health and economic toll of the Coronavirus pandemic. As infection and death rates continued to grow, jobless claims soared, hotels and malls temporarily closed world-wide, and President Trump invoked rarely used emergency powers to fight what he called a “medical war.”  (NYTimes and BBC, March 19)

  • Roundtable President and CEO Jeffrey DeBoer said today, “While the world’s experts work around the clock to solve the health related issues related to the COVID-19 pandemic, Washington must take dramatically more bold policy actions then it has to date to prevent this health emergency from igniting an immediate liquidity crisis or much longer-term economic repercussions. We are actively helping develop a variety of policy responses."
  • DeBoer added, “We are focused on helping employers maintain their payrolls, helping businesses access new or restructured debt , encouraging banking and other regulators to exercise discretion in loan examinations, seeking new credit facilities (like the Term Asset-Backed Securities Loan Facility (TALF) used during the 2008 crisis) to assist the CMBS market, and working with federal tax authorities to ease transaction deadlines, lower tax penalties in debt modification, broaden the ability to use operating losses and many other areas.  Our policy committees are hard at work and our team is coordinating with all the industry and many outside our industry.”
  • Three phases of public policy responses have been assembled to date as the medical community rushes to develop treatments for the virus. 

Phase 1, enacted on March 6, is a $8.3 billion packaged focused on public health measures to bolster vaccine development and research, increased equipment stockpiles, and support for state and local health responses to the virus.  (Roundtable Weekly, March 6).

Phase 2, signed into law by President Trump on March 18, is the $104 billion Families First Coronavirus Response Act (H.R. 6201), which includes paid leave provisions for employees, free COVID-19 testing, expansion of unemployment insurance, food assistance, and other provisions aimed at immediate relief for affected individuals. (Joint Committee on Taxation, March 16)

Phase 3, a $1 trillion-plus bill introduced yesterday by Senate Majority Leader Mitch McConnell (R-KY), will focus on (1) general economic stimulus, (2) small business and individual relief, (3) airline and travel industry concerns; and (4) health care matters.  

  • Security Act’’ (CARES Act) – which includes cash payments to individuals, an expanded SBA loan program and other small business lending facilities, tax relief, substantial aid to airlines, direct and substantial supplemental appropriations to address the pandemic. (CBS News, March 19)
  • Small Business Administration (SBA) loan provisions supported by a broad coalition of business groups, including The Roundtable, are included in the Keeping Workers Paid and Employed Act, which is “Division A” of the Senate GOP’s CARES Act.  (Coalition letter support letter, March 19) 
  • Sens. Marco Rubio (R-FL), Susan Collins (R-ME) and Lamar Alexander (R-TN) developed the $300 billion SBA relief plan to provide loans for businesses and non-profit organizations with up to 500 employees. A portion of the loans, to cover payroll and payments on pre-existing debt, would be forgiven until June 30.  (Section-by-section summary of  the legislation can be found here and a one-pager can be found here.)
  • After GOP Leaders released the legislative text of the Phase 3 bill, McConnell acknowledged the legislation was likely to change as the White House, Senate Democrats and House leaders weigh in.  "The legislation I’ve just laid out will not be the last word,” McConnell said, adding that he will keep the Senate in session until a Phase 3 coronavirus package passes the chamber.
  • McConnell, Senate Minority Leader Chuck Schumer (D-NY) and Treasury Secretary Mnuchin will lead negotiations starting today in an attempt to hash out a compromise plan by Monday – as applications for unemployment benefits intensify and may top 2 million, according to Goldman-Sachs.  (CBS News, March 20)
  • In a memorandum to House Democrats, Chairwoman Waters outlined her wide-ranging proposals, which would go farther than measures floated in the Senate. Her approach would include larger monthly payments to all Americans via the Federal Reserve, suspension of consumer debt and a new federal insurance backstop.
  • He proposed plan also includes suspension of private-sector commercial rental payments, evictions and foreclosures – along with suspension of negative credit ratings during the pandemic.
  • At the White House, President Trump today invoked rarely used emergency powers under the 1950 Defense Production Act (DPA) to marshal private-sector production for medical supplies.  “I invoked the Defense Production Act, and last night we put it into gear,” Mr. Trump said today. “We are invoking it to use the power of the federal government to help the states get things they need like masks and ventilators.” (AP, March 18 and Wall Street Journal, March 20)
  • The DPA empowers the federal government to order private businesses and U.S. manufacturers to prioritize government contracts to produce “critical materials and goods” in return for purchase loans or guarantees.  (The Hill, March 20)

The Roundtable Urges Focused Policy Actions

The Real Estate Roundtable, along with 113 other organizations, wrote to the Administration and congressional leadership on March 18 to urge swift and unprecedented action to confront the fallout from COVID-19.

  • The coalition letter states that Washington’s response needs to minimize the number of businesses that could close and workers who may lose their jobs by ensuring all businesses have the resources necessary to ride out the pandemic. The coalition notes that a focused, massive response should:

    • Immediately provide readily accessible, unsecured credit to businesses of all sizes to ensure they have the cash to pay their workers, rent, and other costs during this crisis.

    • Suspend the filing of business returns and the payment of all business taxes to the federal government for the duration of the pandemic. These suspended taxes should include taxes owed for the 2019 Tax Year, estimated payments for 2020, and all payroll tax obligations.

    • Amend the Tax Code to, among other items, restore the ability of businesses to carryback any net operating losses against previous year tax payments; suspend the application of the Section 163(j) limitation on interest expense deductions for tax year 2020 to avoid penalizing businesses for borrowing during this crisis; and suspend the Section 461(l) loss limitation on pass-through businesses to allow the owners of pass-through businesses to fully deduct any losses they incur this year.

  • The Roundtable during the past few weeks of the crisis has also worked closely with its board of directors and 18 national real estate organization partners to develop specific policy recommendations that would help contain the repercussions of the pandemic, stabilize the economy and reinforce the industry.
  • The Roundtable’s policy advisory committees – tax, credit and capital, and homeland security – continue to hold frequent conference calls with industry specialists to analyze market developments and discuss government policy responses (e.g., H.R. 6201, House Financial Services Committee proposal)
  • Additionally, Real Estate Roundtable President and CEO Jeffrey DeBoer on March 9 notified all Roundtable members that the organization’s March 31 Spring Business Meeting was canceled “in light of health and safety issues surrounding COVID-19.” 

As policymakers intense efforts to mitigate the effects of the pandemic, The Roundtable will continue to communicate unified industry policy recommendations in the short-term crisis or addressing longer-term stimulus of the U.S. economy, infrastructure investment, workforce development and efforts to stabilize capital markets.

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Tax Policy

Tax Changes Affecting CRE in Senate “Phase 3” Coronavirus Package; Roundtable Submits Request for Administration to Waive COD Income

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Senate Majority Leader Mitch McConnell (R-KY) unveiled a “Phase III” coronavirus economic stimulus proposal on March 19 that includes a number of tax provisions important to real estate – including a temporary reinstatement of the net operating loss carryback; relaxation of the current-law restrictions business interest deductions; and long-sought technical corrections to several provisions in the 2017 tax code overhaul (e.g. qualified improvement property). 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act will be subject to change or additions as Democratic lawmakers and the White House with Republicans engage in urgent negotiations to produce a final bill by early next week. A number of tax provisions in the current package affecting real estate include: 

  • Temporarily increasing the threshold of deductible business interest under section 163(j) from 30% to 50% of EBITDA in 2019 and 2020.
  • Allowing a full 5-year carryback of net operating losses from 2018, 2019, and 2020 with no 80% income limitation.
  • A technical correction to the Tax Cuts and Jobs Act (TCJA) of 2017 cost recovery period for qualified improvement property.
  • A suspension of the new limitation on active losses of a pass-through business (section 461(l)) until 2021.
  • A technical correction to TCJA downward attribution of stock ownership rules.  

Other noteworthy tax provisions in the bill: 

  • Allows employers to defer payment of employer portion of Social Security tax (6.2%) in 2020, with the deferred amount payable in 2021 (50%) and 2022 (50%)
  • Provides recovery checks of up to $1,200 for individuals, $2,400 for married couples.  The rebates are increased by $500 for every child.  The rebates phase out for individuals with incomes above $75K and married couples above $150K.
  • Extends the filing date for income tax returns to July 15
  • Permits postponement of quarterly estimated tax payments due on April 15 and July 15 until October 15
  • Waives 10% early withdrawal penalty for retirement distributions up to $100K for coronavirus-related purposes. Provides favorable rules that spread out income recognition, allow for recontribution of withdrawals, and create additional flexibility for plan loans.
  • Allows non-itemizers to deduct up to $300 in charitable donations in 2020.
  • Suspends AGI limitation on charitable contributions by individuals and increases the AGI limitation on corporations to 25% in 2020.
  • Accelerates access to corporate AMT refundable credits.
  • Allows companies to recover overpayments of tax associated with TCJA one-time repatriation toll charge.

The full text of the CARES Act is available here and a lengthier summary is available here.  Additional Reference: Deloitte’s Tax News & Views March 20 summary.

Cancellation of Indebtedness (COD) Income 

The Real Estate Roundtable today asked Treasury Secretary Mnuchin and IRS Commissioner Charles Rettig to act quickly and use their broad authority to provide additional emergency tax relief that will help discourage permanent business closures, layoffs, and consumer bankruptcies.

Specifically, The Roundtable urges the Administration to waive cancellation of indebtedness (COD) income for all taxpayers for events generating COD income between March 1 and August 31, 2020.   (Roundtable COD letter, March 20)

  • Treasury has the authority to temporarily suspend COD income for one year under the statutory disaster relief tax provisions.  Waiving COD income will help facilitate private parties’ ability to engage in debt forgiveness, debt cancellation, and debt restructuring events that would not be necessary in ordinary times.
  • As the Roundtable letter explains, the action will free up much-needed financial resources that businesses can use to avoid force reductions and layoffs.  For families and individuals, waiving COD income will promote the mutual modification of obligations, including credit card debt, mortgages, student loans, and small business loans – helping them avoid bankruptcies and/or large, unwarranted tax bills.
  • The Roundtable also intends to work with Congress to ensure that it provides a permanent exemption of COD income that accrues during this extraordinary and unforeseeable public health and economic crisis.  
  • The Roundtable is also working with other real estate trade organizations to persuade Treasury to use its disaster relief authority to modify the deadlines applicable to like-kind exchange transactions.  The relief will avoid penalizing transactions delayed by the economic crisis.

As the repercussions of the corona pandemic continue to unfold, The Roundtable’s Tax Policy Advisory Committee (TPAC) continues to work on tax policies that benefit American workers, businesses and the overall economy. 

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Capital and Credit

Central Banks Expand Liquidity As Coronovirus Economic Toll Expands; Trump Meets With Hotel CEOs

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The Federal Reserve and central banks around the world conducted urgent large-scale interventions in capital markets this week to ease strains on economies and investors as the economic toll of the coronavirus expanded dramatically in the U.S.

  • The Fed, the Bank of England, the European Central Bank and central banks in Asia pumped large amounts of liquidity into markets, cut benchmark interest rates and engaged in new bond-buying programs to help arrest the sudden drop in business activity and increase in unemployment rates.  (Wall Street Journal, March 20 and Fed news releases)
  • Fed Chairman Jay Powell said on Sunday, “We are prepared to use our full range of tools to support the flow of credit to households and businesses.”  (Reuters, March 15 and Washington Post, March 20)
  • Additionally, the central bank announced an effort to improve the liquidity of U.S. dollar swaps by increasing the frequency of 7-day maturity operations from weekly to daily – done in coordination with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank (Fed Press release)
  • The Fed also announced the creation of numerous lending facilities to backstop the credit market, including the:

    • Money Market Mutual Fund Liquidity Facility (Fed Press release

  • To support the issuance of more debt by states and cities in the coming weeks and months, the Fed today announced an expansion of its asset purchases to include municipal bonds – through the Money Market Mutual Fund Liquidity Facility. (Fed Press release).
  • Market interventions by other nations this week included The European Central Bank (ECB), which on March 18 launched an €750 billion ($820 billion) emergency private and public bond program.  Today, Christine Lagarde, President of the ECB, addressed the program’s specifics and other actions the ECB will take.  “We are fully prepared to increase the size of our asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed. We will explore all options and all contingencies to support the economy through this shock,” Lagarde said.  (ECB Blog, March 20)

Hotels and Malls Hit By Coronavirus Economic Shocks

The economic shockwaves of the coronavirus pandemic are quickly affecting operations of major U.S. hotel chains and other aspects of the commercial real estate industry.

  • CEOs of Marriott, Hilton, Hyatt and other chains met Tuesday with President Donald Trump to describe the virus’ impact.
  • Former Roundtable Chairman and Hilton Worldwide CEO Chris Nassetta told the president that Hilton plans to temporarily suspend operations at most of its hotels located in major U.S. cities – and that he expects global occupancy rates to fall to as low as 10%.   (View meeting of Hotel CEOs and President Trump, with transcript, on C-Span)
  • Nassetta added that in Hilton’s 100-year history, it has never closed a hotel except for remodeling or demolition.  “I’ve been doing this for 35 years. Never seen anything like it,” Nassetta told Trump.
  • At the meeting’s conclusion, United States Travel Association President Roger Dow told President Trump, “I would like to put together what everyone has said here.  The numbers are $355 billion is what we’re going to lose, 4.6 million employees will be out of work, and we’re predicting unemployment will go to 6.3 percent.  So, it’s now — it’s serious.” (C-Span video and transcript)
  • Another CRE sector deeply affected by the outbreak is retail.  On March 18, Simon Property Group announced it would temporarily close all of its retail properties, including Malls, Premium Outlets and Mills in the U.S until March 28 to address the spread of COVID-19.  (Simon statement)

The Roundtable is in contact with its membership to assess the widespread repercussions of the crisis and will report its findings to policymakers to help formulate targeted policies to combat the pandemic.

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