Real estate industry leaders this week responded to protests against racial injustice throughout the nation sparked by the May 25 death of George Floyd in Minneapolis. 

• Real Estate Roundtable Chair Debra Cafaro (Chairman and CEO, Ventas, Inc.) on June 2 stated, “The buildup and expression of anger and frustration around racial injustice is real and it is justified.  There are sadly far too many examples of systemic racism, bias and inequality in our society, and there are no fast or easy answers to dismantling hundreds of years of racism.”

• She added, “We do not condone violence against people or property, which seems to be emanating principally from criminal and other elements, rather than from peaceful protesters who are demanding change. But We CAN stand together as allies, stand against racism when we see it, and take deliberate actions to encourage and promote diversity, equity and inclusion within and beyond our own homes, networks, and communities to ensure that everyone feels like they belong.”  (Full Statement, Ventas, June 2)

• Real Estate Roundtable President and CEO Jeffrey DeBoer on June 1 told BisNow, “Political, business and community leaders must come together and take concrete actions to significantly and measurably combat the long-standing abuse and unequal opportunities that continue to fall, particularly across race and gender.”  (Bisnow article, June 1)

• Roundtable Board Member and Related Companies CEO Jeff Blau also told Bisnow on Monday, “… this has been going on for a very, very long time, and I think [inequality] is probably one of the greatest risks to our country's future that I can imagine. And I think it's a topic that we all, as business leaders, need to focus on to try to make things better.”

• Scott Rechler, chairman and CEO of RXR Realty and a Roundtable Member, tweeted a statement on May 31: “The rage currently being felt across our country reflects the widening inequality and systemic racism that has plagued our nation for far too long.”  He urged demonstrators to channel their anger into change at the ballot box.  (TRD, June 1, “Developers, brokerage heads express solidarity but urge non-violence”)

James Whelan, president of the Real Estate Board of New York, said Floyd’s killing underscores “systemic issues of race and class” that the city and country have failed to address.  Whelan told The Real Deal that he condemned violence and pledged the industry would provide solutions, “not just lip service.”  (TRD, June 2) 

Economic Restart and Re-Entry Concerns

Working with its industry partners, The Roundtable is focused on identifying and addressing issues associated with building re-entry as people return to work in many regions.

• The Real Estate Roundtable’s Building Re-Entry Working Group continues to meet weekly to address issues associated with the restarting of the economy.  This week, the Working Group shared a report from fitwel on how to adapt building design projects to respond COVID 19.

• Additionally, a June 4 article in Facility Executive, “NYC Real Estate Leaders Issue Guidelines For Reentering Office Buildings,” notes, “A coalition of business and real estate industry leaders have joined together to issue New York City’s most comprehensive guidelines to facilitate the safe and healthy reentry into commercial office buildings. These guidelines follow New York State’s issuance of commercial building safety practices and will help owners, managers, and building workers comply with state guidance.”  (Best Practices for Reentering Commercial Buildings in Phase Two of New York Forward)

• A recent Littler survey of more than 1,000 employers show concerns centered on when to bring employees back and how to do so safely; how to accommodate increasing remote-work requests; and liability concerns stemming from the rise in COVID-19-related employment claims and lawsuits.  (View the survey infographic and the May publication). 

• The Centers for Disease Control and Prevention (CDC) has issued recommendations for American employers preparing to reopen their offices as states begin to lift their lock-down orders.  [CDC, Interim Guidance for Businesses and Employers Responding to Coronavirus Disease 2019, (May 2020]  CDC recommends various steps such as checking ventilation systems, increasing outdoor air circulation, ensuring employees maintain six feet of separation through physical barriers, staggered worker shifts, enhanced clean and disinfecting practices, and conducting employee health checks and screenings.

• A multi-sector business coalition including real estate, tourism, technology, manufacturing, health care, and energy sector groups – led by the U.S. Chamber of Commerce – called upon Congress in a May 27 letter to enact temporary liability protections for businesses struggling to reopen and operate safely during the COVID-19 pandemic. 

• Among the more than 200 signatories to the letter are The Real Estate Roundtable, American Hotel & Lodging Association, International Council of Shopping Centers, National Apartment Association, National Association of REALTORS®, and the National Multifamily Housing Council.

In recent weeks, Roundtable members have shared their perspectives and experiences with a number of media platforms regarding workplace re-entry strategies and technologies.  (Roundtable Weekly, May 15)  Such questions are also complicated by an evolving patchwork of state-level laws and guidance.  (New York Times Interactive Map, “See How All 50 States are Re-Opening” )

Commercial Rent Shortfalls; Bank Regulator Warns About Lock-Down Impact on CRE

The Washington Post on June 3 reported in “The next big problem for the economy: Businesses can’t pay their rent” that more than 40 percent of commercial retail rents were not paid in April and May, citing Datex Property Solutions.  (Request Datex’ report on National Tenant Payment Trends.)

• The Post story notes when businesses stop paying rent, it sets off an alarming chain reaction that could threaten the broader economy and put landlords at risk of bankruptcy. The article also mentions how an aggressive proposal in California would force landlords to renegotiate leases with tenants affected by the pandemic, posing a risk to the basis of contract law.  John Worth, executive vice president for research at Nareit, is quoted, “It’s not appropriate policy to have blanket rent forgiveness. It could really create some chaos.”

• The New York Times on June 5 reports in “Tenants’ Troubles Put Stress on Commercial Real Estate” that landlords have begun to fall behind on the loans used to acquire or build properties, citing hotel and retail property data from Trepp.

• The Times article notes, “As landlords face rent shortfalls and renegotiation because of the pandemic, lenders are also exposed.”  It continues, “Beyond the immediate impact of business closings on tenants’ revenue are larger questions, including the already-dire trends for malls and shopping centers, how office and consumer behavior might change after the pandemic, and the effects of recent looting and vandalism on retail corridors.”

• The Roundtable has emphasized the vital need to restore the “rent obligation chain” during this economic crisis, which would benefit all stakeholders – business and residential tenants, owners, lenders, municipal and state budgets and retirement investments. (Bisnow video interview with Jeffrey DeBoer, April 30)

• Separately, Acting Comptroller of the Currency Brian P. Brooks on June 1 urged the nation’s mayors and governors to consider the adverse impacts of long-term regional economic shutdowns on the nation's financial system and the commercial real estate sector.  (Office of the Comptroller of the Currency news release, June 1)

• In letters to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors, Brooks warned that the lengthy duration and scope of continued lockdown orders “potentially threaten the stability and orderly functioning of the financial system the OCC is charged by law to protect.”

• Brooks also warned about the negative potential consequences for CRE, stating, “Banks are a major source of commercial real estate finance in the United States. Cutting off utilities to commercial buildings can impair their condition, structural integrity, and value, thus impairing the collateral that secures real estate loans.  Commercial real estate loan collateral is also put at risk by lengthy property vacancies that result from extended stay-at-home orders.”

• “Apart from damage to the physical collateral, extended lockdown orders obviously impair the ability of businesses, particularly small businesses, to generate the revenue needed to pay their loan obligations,” Brooks stated.  (OCC letter to U.S. Conference of Mayors)

The challenges of restarting the economy and re-entering commercial properties will be a central topic of The Roundtable’s June 11-12 Virtual Annual Meeting and concurrent policy advisory committees. 

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Legislative changes to the Paycheck Protection Program (PPP) signed into law today will ease restrictions on forgivable loans to small businesses seeking to retain and pay workers affected by COVID-19.  (BGov, June 4)

• Under the CARES Act, a portion of PPP loans could be forgiven for an eight-week period after origination.  (See “CARES Act and Implications for Real Estate”)

• The most significant rule change provided by the Paycheck Protection Program Flexibility Act (H.R. 7010) this week extends that time period that borrowers must spend their funds to 24 weeks, while preserving the ability to have the debt forgiven. 

• H.R. 7010 passed the House (417-1) on May 28, cleared the Senate by unanimous consent on June 3 and was signed into law by President Trump today.  (Roundtable Weekly, May 22 and AP, June 5)

The bill also:   

• Replaces the “75-25 Rule” on the use of PPP loan proceeds for loan forgiveness purposes with requirements to spend at least 60% for payroll costs and up to 40% for covered mortgage interest, rent, and utility payments;
  
  
• Extends the PPP re-payment period to five years for small businesses that do not receive loan forgiveness;
  
  
• Allows PPP loan recipients to take full advantage of deferral of employment taxes through the end of 2020; and
   
• Provides borrowers a “safe harbor” from the loan forgiveness rehiring requirement if the borrower is unable to rehire an individual who was an employee of the recipient on or before February 15, 2020, or if the borrower can demonstrate an inability to hire similarly qualified employees on or before December 31, 2020;  (Congressional Research Service summary, May 28)

Senate Majority Leader Mitch McConnell (R-KY) said additional  technical fixes to the PPP will follow at the requests of Sen. Ron Johnson (R-WI), Senate Small Business and Entrepreneurship Chairman Marco Rubio (R-FL) and Sen. Susan Collins (R-ME) (RollCall, June 3)

Next COVID-19 Stimulus; Fed Expands Muni Loan Program

The Trump Administration is considering policy options for the next legislative response to the coronavirus pandemic.  The Wall Street Journal reports a senior administration official stated this week, “We’ve been through the rescue phase and we’re now in the transitional reopening phase and I think generally speaking we’d like to move into a growth-incentive phase for the future economy.”  (WSJ, June 2)

• White House aides, according the Journal, stated the nation’s mass unrest over police brutality and racial inequality, along with the progress of business reopening efforts, will influence the pace of discussions – but they do not expect the completion of a package until July.

• House Ways and Means Committee Chair Richard E. Neal (D-MA) on Wednesday said he is continuing negotiations with Treasury Secretary Steven Mnuchin on another round of coronavirus relief legislation that could include major infrastructure spending and tax credit proposals.  (Law360, June 4)

• Neal said on June 3 that in addition to infrastructure investment, he intends to propose an expansion of new markets tax credits for private investment in low-income communities, low-income housing tax credits to build affordable housing, and historic rehabilitation tax credits for preservation purposes. (TNT, June 4)

• This week also saw the Federal Reserve expand the scope of its $500 billion a lending program for state and local governments to include smaller borrowers.   (Fed news release, June 3)

• The Fed’s expansion of its Municipal Liquidity Facility (MLF) will now enable all U.S. states “… to have at least two cities or counties eligible to directly issue notes to the MLF regardless of population.”  Governors from each state will also be able to select two bond issuers “…whose revenues are generally derived from operating government activities (such as public transit, airports, toll facilities, and utilities) to be eligible to directly use the facility.’  (MLF term sheet, June 3)

• The MLF expansion may now allow sparsely populates states to designate two areas hard hit by the economic repercussions of the pandemic, or bond issuers like New York’s subway system, to sell debt to the Fed as a way to maintain critical services.  (New York Times, June 3)

The various policy response to economic impacts of COVID-19 will be a focus next week during The Roundtable’s Virtual Annual Meeting, which will include a discussion with Treasury Secretary Steven Mnuchin.

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The Internal Revenue Service (IRS) yesterday issued broad relief for Qualified Opportunity Zone Funds and their investors in response to the ongoing COVID-19 pandemic.  (IRS news release, June 4)

IRS Notice 2020-39 includes five helpful changes and clarifications to the current rules governing the capitalization and operation of opportunity funds.  The Roundtable’s Opportunity Zone Working Group has strongly supported greater flexibility in the Opportunity Zone rules to ensure that capital investment continues to flow to hard-hit, low-income communities during the economic crisis brought about by COVID-19. 

Under the new guidance:

1. if the 180-day investment period to roll gain into an opportunity fund would have expired between 4/1/20 and 12/31/20, the deadline is now extended to 12/31/20;

2. if an opportunity has a compliance date for the 90% investment asset test that falls between 4/1/20 and 12/31/20, failure to comply is automatically excused under the reasonable cause exception;

3. the 30-month substantial improvement period for real property owned by an opportunity fund or opportunity zone business from 4/1/20 through 12/31/20 is disregarded;

4. the IRS has clarified that the working capital safe harbor for opportunity fund working capital assets is extended under the President’s emergency declaration by 24 months (for a total period of 55 months) if the working capital is held by the fund before 12/31/20 and the other requirements for the safe harbor are met; and

5. the 12-month period for an opportunity fund to reinvest proceeds from the return of capital or disposition of property is extended by an additional 12 months if the original period included 1/20/20, the date of FEMA’s major disaster declaration and other requirements are met. 

Additionally, the IRS has updated their Qualified Opportunity Zones Frequently Asked Questions.

• The Roundtable and a broad coalition of real estate organizations continue to support more significant enhancements to Opportunity Zones that would require congressional action. 
  

• The 11-member industry coalition 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)

• The IRS changes this week come not long after the coalition’s letter, and several regulatory recommendations made by Sen. Tim Scott (R-SC) and eight other Senate Republicans on May 4 in a letter to Treasury Secretary Mnuchin and IRS Commissioner Charles Rettig.  (Roundtable Weekly, May 8)

The Roundtable’s Tax Policy Advisory Committee will discuss Opportunity Zone guidance and other tax relief resulting from the COVID-19 pandemic during the first Virtual Roundtable Annual Meeting on June 12.  

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• Rep. Peter DeFazio (D-OR), chairman of the Transportation and Infrastructure (T&I) Committee, said, “We are in multiple crises at the moment …  But we have to move forward with our very important reauthorization of surface transportation.  (BGov, June 3)

• The INVEST in America Act is part of a $760 billion “Moving Forward Framework” rolled out in January by House Speaker Nancy Pelosi (D-CA) with the chairs of three House committees to address national infrastructure investment.  (Roundtable Weekly, Jan. 31, 2020)

• A plan on how to pay for the new bill has not yet been determined by the House Ways and Means Committee.  The Roundtable submitted extensive comments on infrastructure policy to both committees last year.  (March 20, 2019 W&M comments; April 29, 2019 T&I comments.)

• Improve the Transportation Infrastructure Finance Innovation Act (TIFIA) loan program to encourage more public-private partnerships for infrastructure projects;

• Encourage high-density, transit-oriented development by incorporating the Build More Housing Near Transit Act (H.R. 4307), which would require localities applying for Federal Transit Administration grants to assess feasibility of affordable housing construction along mass transit routes (Up for Growth Action’s 1-page summary);

• Authorize a Vehicles Miles Travelled (VMT) pilot program as a potential, more sustainable funding source for the Highway Trust Fund as opposed to the controversial federal “pay-at-the-pump” gas tax;
• Revise current Capital Investment Grant (CIG) and TIFIA program state/local “cost share” commitments to allow funding for major projects (like the New York-New Jersey Gateway Program along the Amtrak Northeast Corridor); and
• Prioritize use of Highway Trust Funds with a “fix it first” strategy to focuses on repair and rehabilitation of decaying infrastructure.

• The House bill also includes measures on climate resiliency and Amtrak that are expected to face opposition by the Republican majority in the Senate.  For example, the measure would require the U.S. Department of Transportation (DOT) to establish new greenhouse gas performance measures, and authorize a new DOT program to support carbon pollution reduction.

• The Democratic T&I committee bill is considered the first salvo in the transportation funding debate to reauthorize the Highway Trust Fund before it expires on September 30, 2020.  Additional committees from both the House and Senate need to produce other portions of the final legislation.

• The T&I committee is scheduled to consider the INVEST in America Act on June 17 – and a vote on the House floor is could occur at the beginning of July. (BGov, June 3)

• The need for infrastructure investment to help restart the economy and encourage long-term  growth was also the focus of a June 3 meeting between President Trump and New York Gov. Andrew Cuomo at the White House.  (Wall Street Journal and New York Times, June 3)

• Gov. Cuomo said, “It was about: How do we supercharge the reopening?  It was a good conversation.”  The two policymakers discussed obstacles to federal funding and expedited approvals for significant New York transportation initiatives such as the Gateway Project, which would require new rail tunnels under the Hudson river.  (WSJ, April 18, 2019)

• President Trump on June 4 signed an executive order that cites an economic emergency to waive laws for expediting federal approval for highways, pipelines and other projects.  The Washington Post cites a senior administration official stating that the action will help the economy recover from novel coronavirus losses.  (Washington Post, June 4)