For much of the real estate industry, the $2 trillion stimulus package President Trump signed into law to bolster the economy doesn’t do enough.
The plan offers limited relief to real estate, industry pros said, though the cash payments to individuals and a boost in unemployment insurance could help ease some economic pain for renters, and therefore for landlords and lenders.
“It’s a beginning. We need more,” said Thomas Bannon, CEO of the California Apartment Association, a statewide group that represents property owners. “It’s all about stabilizing the economy, because if you stabilize the economy, to some degree you’re going to stabilize the rental housing industry. The faster that gets done, the better it is for everybody — not just residents but also owners.”
The costliest spending bill in American history was signed Friday, in response to the coronavirus crisis that now has much of the nation on near lockdown.
Bannon added that CAA has asked its members to set payment plans of 30 to 60 days or more for struggling tenants, because the individual payments are unlikely to arrive in time to cover rent for April 1 — although tenants would hopefully file for unemployment quickly enough to tide them over until then.
The U.S. Department of Labor reported a record-smashing 3.3 million jobless claims filed last week, as hotels and retailers in particular hit with mass layoffs.
Bannon said the $1,200 checks the government will send taxpayers won’t be enough to help renters pay their bills. “We would have liked to have seen more, but it’s better than nothing,” he said. He continued, “I just hope that Congress is focused on recognizing that this may not be the end for the needs for federal assistance. This is the foundation, and you’ve gotta build on it.”
Congress is already putting together plans for another stimulus package for April, which may be even larger than the last, the Wall Street Journal reported Sunday.
The current relief package does little for many landlords, who do not have federally-backed mortgages or subsidized renters.
Alan Hammer, an attorney at New Jersey-based Brach Eichler who specializes in multifamily real estate, is telling his clients to be proactive about reaching out to existing lenders to see what programs they could qualify for, in lieu of federal or state help.
“There’s nothing really in the CARES Act that provides for landlords,” said Hammer, referring to the stimulus package’s official name — Coronavirus Aid, Relief, and Economic Security Act. “But you’ll never hear me complain that life has been unfair to landlords as a group.”
Francis Greenburger, chairman and CEO of real estate firm Time Equities, said the plan “could be better,” adding that programs to offer forbearance for 90 days on some mortgages may not be helpful in the long run.
“Kicking the can down the road is not as good as it sounds if the crisis is still here in three two four months,” Greenburger said.
Many in the multifamily sector warn of a disconnect with elected officials, and say the government has done little to protect against the expected drop-off in rents come April 1. If renters do not pay rent en masse on Wednesday and in the few days after, state revenue from real estate taxes will be negatively impacted.
“Money for [elected officials’] programs doesn’t come from the sky: it comes from tenants who pay rent, and individuals who own their homes,” Greenburger added. “To just pretend that you don’t have to pay rent, and still expect the government to be paid is silly.”
On the hook
The question of what will happen to mortgage lenders remains unclear. Last week, the Mortgage Bankers Association estimated that mortgage companies could be on the hook for at least $75 billion on short notice, and possibly more than $100 billion if homeowners and landlords sought forbearance on a broad scale.
In a statement Thursday, MBA pointed out one bright spot for its industry in the stimulus bill.
“Importantly, this legislation includes funding that can be leveraged to create a broad, dedicated Federal Reserve liquidity facility,” the statement said. “It is critical that the Federal Reserve and U.S. Treasury swiftly establish a financing program to help some mortgage servicers provide the unprecedented levels of mortgage payment forbearance required under the legislation to help homeowners facing Covid-related hardships.”
The bill would also free up significant liquidity for municipal markets — allowing the Federal Reserve to purchase unlimited amounts of municipal bonds — by lifting a previous restriction to buy longer-term debt. Because it allows municipalities to raise money cheaply, that’s good news for affordable housing developers who use tax credits to finance their projects.
Developers say freeing up financing for affordable housing is more important than ever, although the sector may see a sharper decrease in rents initially.
“Affordable housing could be more dramatically affected in the short term,” said Ron Moelis, CEO of L+M Development Partners, one of the most active affordable housing developers in New York City. Moelis said more of those tenants may lose their jobs because “they don’t have as much of a social safety net.”
Low-income renters already receiving federal subsidies will also see more help as a result of the federal stimulus, which set aside $1.25 billion for tenant-based rental assistance. That helps renters receiving Section 8 assistance, such as many in the 4,000-unit Putnam Portfolio in Manhattan, the majority of which L+M and Invesco purchased from Brookfield last year through L+M’s workforce housing fund. Two-thirds of those apartment units are income restricted and receive tax benefits from the city. At the time, L+M said the play was “defensive and cycle-resistant,” a strategy that the federal stimulus package bolsters significantly.
“Our investment thesis tends to me a more conservative one that almost always includes a component of affordable housing,” said Moelis. “I do think the model holds out even in this environment, but that doesn’t mean we can’t lose money. We’re just better protected in a downturn than others who may be more aggressive.”
More for the wealthy
Renters who are not subsidized will benefit from a one-time $1,200 check from the government. But the stimulus does much more for the wealthy than for the poor, said Tom Waters, a housing policy analyst at the Community Service Society.
“The tenant constituency that is protected is in subsidized housing,” Waters said. “There is an apparatus that fights for you. Obviously, if you’re a subsidized rich person it’s even better.”
Kansas-based tenant advocate Tara Raghuveer is pushing for national rent and mortgage suspension along with groups like People’s Action, a community organizing nonprofit. Raghuveer said she was largely disappointed by the stimulus package, but advocates will take what they can get, “considering the deep level of austerity and disinvestment going on for years in public housing.” The bill sets aside $685 million for public housing, despite New York City Housing Authority’s current budget shortfall of $25 billion.
While landlords across the country prepare for a drop in the number of rent checks they receive, Raghuveer said that tenant organizers are carefully weighing a potential rent strike — which is different from a widespread inability to pay rent.
“There’s a lot happening right now to shore up the power we’d need to get a rent suspension at the federal level,” Raghuveer said. “Tenants are organizing around their inability to pay rent like never before. I think we might get there by May 1.” States like New York and California already have temporary measures in place that forbid landlords from evicting tenants.
Whether or not mass rent strikes occur, landlords will find themselves in need of loan forbearance as tenants who are unable to pay withhold their checks, Bannon said. “Property owners are very similar to the general population,” he said. “There are property owners who are leveraged significantly, and they operate month-to-month.”
Because forbearance from Fannie Mae and Freddie Mac requires mortgage borrowers to be current on their loans, and because a recent mortgage relief deal between the banks and California Gov. Gavin Newsom only covers one- to four-unit buildings, some struggling landlords could soon find themselves in dire financial straits, he added.
“This industry, from the smaller owners to the larger corporate folks, is all about cash flow, and you’ve gotta get those dollars in to keep the industry working,” Bannon said. “My big concern is that if this doesn’t get resolved rather quickly, I don’t know what happens to this industry. It’s difficult to rebound.”