Massive stimulus package has limited upside for real estate

National /
Mar.March 25, 2020 07:44 PM

U.S. markets started Wednesday with a burst of optimism, as a $2 trillion stimulus deal had been reached between the White House and Congress. But as the day went on, the proposed legislation became mired in new disputes about unemployment benefits and assistance to corporations.

In any case, this historic legislation — the largest stimulus package in U.S. history — would have contained few clear wins for the real estate industry, or even for renters, who are set to receive $1,200 checks, sources said.

The coronavirus relief package is “wholly insufficient and incomplete,” said Craig L. Price, a transactional attorney with Belkin Burden Goldman LLP.

The industry fears that many of the rent checks due April 1 will not show up.

“We have seven days until rent is due, seven days to see how many landlords receive rent,” said Price. “The stimulus doesn’t do much to answer the question for commercial lenders or borrowers.”

As of Wednesday evening, the final version of the legislative text had yet to be published, although some senators circulated summaries of its provisions.

Four Republican senators and Sen. Bernie Sanders threatened to hold up the voting process over different aspects of the bill. That sent the Dow plunging almost 700 points in the final hour of trading.

The highlight for real estate among the package’s highlighted provisions appeared to be a direct payment of $1,200 to most individuals with income up to $75,000, which would help renters and homeowners alike make their monthly payment. But in a high-rent city like New York — the pandemic’s epicenter in the U.S. — that amount would not go far.

“I think it’s not nearly enough money for renters. [In New York], hundreds of thousands of people are not going to pay rent on April 1, because they can’t,” said Cea Weaver of the tenants’ group Housing Justice For All. “We’re pretty worried about that.”

Weaver added that she is concerned about “people who are undocumented, get paid in cash, or work in the gig economy and are unable to drive their Uber.”

Other provisions in the proposed bill, including expanded unemployment benefits and loans for small businesses that maintain their payrolls, would indirectly ease pressure on some renters.

“Small businesses will be able to make payroll without losing their employees under this program so that their continuity is insured,” said Jeff Friedman, a partner at law firm Hall Estill. “This should give landlords some comfort that their tenants will be able to pay rent eventually if not immediately.”

Landlords whose mortgages are backed by federal agencies will see some relief on the lender side. “I think the reality is that those individual payments aren’t going to make a dent,” said Michael Dabah, an attorney at Stein Adler. “What’s going to be the most consequential is the applicability to the federally backed loans. Those borrowers are going to see a huge help there.”

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, announced this week that the two mortgage insurers will give multifamily landlords a break on their loans on the condition that they do not evict renters low on money because of the pandemic.

Jay Martin, executive director of landlord group Community Housing Improvement Program, agreed that the stimulus was lacking. “Landlords need their tenants to pay the rent. Any stimulus needs to be significant enough so that tenants can afford living necessities and pay their rents,” he said. “This [legislation] does not do that. At least not so far.”

Instead of setting aside billions for corporations and companies “that clearly can wait,” more should be done to ease payments on commercial mortgages, Martin continued. “The government has already shown they have the ability to work with banks like [it did with] Fannie and Freddie to waive mortgage payments, and help [owners] work with tenants.”

In New York, the Cuomo administration has introduced regulations requiring banks to provide mortgage relief to homeowners, but not to renters or landlords. Such moves may cause difficulties for lenders as well.

“There seem to be increased risks to the CMBS market,” Savills chief economist Heidi Learner said of the changes in New York. These risks “clearly aren’t going to be addressed by the Senate/House bill, where aid is directed to individuals and a handful of sectors.”

The stimulus package includes $500 billion in loans for certain large industries, including airlines, with restrictions such as a prohibition on stock buybacks for a period of time.

Ratings agency Fitch has warned that non-bank lenders in particular could be in trouble if mortgage forbearance becomes widespread.

“The pressure on the non-bank mortgage sector is particularly acute at present … and could be exacerbated further as an unintended consequence of the government’s mortgage forbearance program,” the agency said in a press release, announcing that it had put seven non-bank lenders on negative-rating watch.

“There is some indication that the $2 trillion stimulus bill could provide the Fed and/or Treasury with the flexibility to provide liquidity support to the non-bank mortgage sector,” Fitch added, but “failure to act could lead to meaningful disruption in the mortgage industry.”

Meanwhile, real estate agents and brokerages may also find some relief in the stimulus package’s support for small businesses and independent contractors.

“We are starting to tackle the details of the massive federal stimulus package,” said James Whelan, president of the Real Estate Board of New York. “Initial indications are that there are specific aspects of the bill that will help real estate agents, brokerage firms, commercial tenants and small businesses to start the process of getting them back on their feet financially.”


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