Frequently Asked Questions
ACTIONS TAKEN BY THE U.S. FEDERAL GOVERNMENT
Q. My tenant says their business has effectively shut down and they cannot pay their rent. What resources can I point them to that were enacted as part of the latest stimulus bill and prior bills?
A: In the immediate term, the main source of relief for small- and medium-sized businesses will likely be the roughly $350 billion in Small Business Administration (SBA) loans made available as part of the stimulus bills enacted into law. Phase I of the stimulus bills expanded the SBA’s Economic Injury Disaster Loans (EIDL) to cover economic damage from the pandemic, and the most recent action, Phase III, known as the CARES Act (the Coronavirus Aid, Relief and Economic Security Act) created the Paycheck Protection Program, which modified the SBA’s primary loan program to make it available to a much larger number of businesses and to allow the loans to be used for broader purposes, including payroll and rent and lease commitments.
Loans under the Paycheck Protection Program can be as high as $10 million, which is an increase over the $2 million maximum under the EIDL program. Loans are eligible to be forgiven by the government if the business meets certain criteria. Top interest rate for the loans is 4%.
Q: Can tenants use SBA loan proceeds to cover rent and other expenses besides payroll?
A: Yes, the CARES Act expands the permitted uses of SBA loans to include payroll costs (up to $100,000 a year, per individual employee), certain health care benefits, mortgage interest, rent and lease commitments, utilities, and interest on other debt incurred before the cover period.
Q: What are the loan forgiveness requirements for SBA loans?
A: To qualify for forgiveness, loan proceeds must be used to cover payroll costs, interest payments on mortgages, rent and lease commitments, and utility payments. The amount of debt forgiven is reduced if the business reduces wages or its workforce, based on a specified reduction formula.
Q. What advice should I give my tenants regarding these programs?
A. Business owners need to apply as soon as possible, either on the SBA’s website or through an SBA-approved lender. For the EDLI loans, they can apply directly on the Small Business Administration Disaster Loan Assistance website. For loans under the Paycheck Protection Program, Treasury Secretary Steven Mnuchin has estimated that the SBA would have a website ready by April 6, 2020. Demand for these loans will be high, and the SBA’s website may suffer delays as a result.
It is important to note that the SBA has authority to delegate lending authority to current SBA-authorized lenders and non-SBA lenders. The SBA has 30 days to issue regulations in connection with the program. Potential loan applicants should be encouraged to reach out directly to their lenders and inquire about applying for the SBA loans through them.
More information from the SBA is available by e-mail at email@example.com or by phone at 1-800-827-5722.
Q. What other provisions are in the federal legislation that are important for commercial real estate?
A. In addition to the provisions designed to provide individual tax relief and to help small businesses, the CARES Act:
- Provides a technical correction to the Qualified Improvement Property (QIP) depreciation drafting error from the 2017 Tax Cuts and Jobs Act (TCJA). The error resulted in a 39-year depreciation period for QIP, rather than the 15-year period, and made QIP ineligible for the immediate expensing provisions of the legislation, contrary to the intent of Congress.
Makes changes to the tax code’s Net Operating Loss (NOL) provisions. It temporarily suspends the TCJA’s loss limitation rules, and allows a non-REIT business’ net operating loss from taxable years beginning in 2018, 2019, and 2020 to be carried back 5 years.
Fixes another TCJA drafting error, and ensures carryforward and carryback provisions would be effective for NOLs arising in tax years beginning – not ending – after December 31, 2017.
Increases the cap on the deductibility of interest expense, from 30% of EBITDA (earnings before interest, taxes, depreciations and amortization) for taxable years beginning in 2019 and 2020, to 50%.
Allows employers to defer their share of payroll taxes through the end of the 2020 (calendar year, with 50% of the deferred amount due in 2021, and the remainder in 2022.
Provides an employee retention credit (applied against the employer’s 6.2% share of payroll taxes) for businesses ordered by a governmental authority to partially or fully close. The credit covers wages up to $10,000 per employee, per quarter.
Accelerates the ability of certain companies to recover Alternative Minimum Tax (AMT) credits, to more quickly obtain additional cash flow. The corporate AMT was repealed by the TCJA, but AMT credits were made available as refundable credits over several years.
Explanations of other CARES Act provisions and other federal actions.
Q. Why are the QIP fix and the NOL changes particularly important for commercial real estate right now?
A. Because of the mistake in the original tax reform bill, businesses that undertook tenant improvements to property took less depreciation for those expenditures than was intended by Congress, essentially overpaying taxes for 2018 and 2019. With the QIP fix, which is retroactive to the original date of passage of the Tax Cuts and Job Act, businesses may file an amended tax return and get an immediate refund from the IRS.
Similarly, the Net Operating Loss changes will allow the expected losses suffered by many businesses in 2020 to be carried back five years, allowing businesses to offset past taxes paid and obtain refunds from the IRS, or carry these losses forward to offset future taxable gains, thereby allowing them to some extent make up the ground they lost during the COVID-19 pandemic.
Q. I know tax filing deadlines for taxpayers – both individuals and businesses – have been delayed until July 15. Has the second quarter (June 15), filing deadline also been pushed back?
A. At this time, the Treasury Department has only postponed the April 15 deadline. Estimated second quarter tax payments are currently still due June 15.
Q. What about actions taken by the Federal Reserve? What are those and how are they intended to help?
The Federal Reserve has taken unprecedented, aggressive actions to ensure the continued liquidity of financial markets and availability of credit for businesses affected by the COVID-19 pandemic. Specifically, the FED has taken the following actions:
- March 3: Target rate for federal funds lowered 0.5 percentage points, to a target range of 1% to 1.25%.
- March 15: Target rate for federal funds lowered by 1.0 percentage point, to a target range of 0% to 0.25%; FOMC announces increase of holdings of Treasury securities by at least $500 billion and holdings of agency mortgage-backed securities by at least $200 billion.
- March 22: Regulatory agencies issue joint guidance encouraging financial institutions to work with borrowers affected by COVID-19
- March 22: Unlimited expansion of bond purchasing programs announced (modifying March 15 announcement of the purchase of at least $500 billion of Treasury securities and $200 billion of mortgage-backed securities).
Two new lending facilities created to support credit to large employers: Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
Third facility, the Term Asset-Backed Securities Loan Facility (TALF), created to enable the issuance of asset-backed securities (e.g. student, auto, and credit card loans, and loans guaranteed by the Small Business Administration).
Announcement of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA. That program is expected to be unveiled soon.
Q. What about the issue of business interruption insurance? Is there any talk about insurance programs for pandemics?
Mandating that insurance companies pay on existing business interruption policies, which did not include coverage for pandemics like COVID-19, was not an option that Congress considered for the rapidly moving relief bills. NAIOP is, however, currently engaged in discussions with its real estate and other industry allies to advocate for a federal role in providing a backstop for insurance companies to provide coverage for business interruption resulting from COVID-19 like pandemics, and for establishment of an economic recovery fund to address damage to businesses from the current crisis. This broad industry coalition has sent a letter to Congress and the Trump administration advocating for such an approach.
Q. My state government has designated certain workers as “essential” who are thereby allowed to work during mandatory “stay at home” orders. My understanding is that guidance on this came from the Department of Homeland Security, and construction workers are not included. How does this affect what my state or locality does on this issue?
The Cybersecurity and Infrastructure Security Agency (CISA), an agency of the Department of Homeland Security, did indeed develop an Essential Critical Infrastructure Workforce list, developed in collaboration with other federal agencies, State and local governments, and the private sector. The list is intended to help state, local, tribal and territorial officials ensure continuity of functions critical to public health and safety, as well as economic and national security. However, the CISA guidance specifically does not preclude states or localities from adding to the list. As the guidance states:
“This list is advisory in nature. It is not, nor should it be considered, a federal directive or standard. Additionally, this advisory list is not intended to be the exclusive list of critical infrastructure sectors, workers, and functions that should continue during the COVID-19 response across all jurisdictions. Individual jurisdictions should add or subtract essential workforce categories based on their own requirements and discretion.”
Q. Can employers ask employees coming into the workspace whether they have the disease, or symptoms associated with the illness?
Yes, according to the Equal Employment Opportunity Commission. However, for those employees who are teleworking and not physically interacting with coworkers, the employer would generally not be permitted to ask the employee these questions. The EEOC addressed the most common questions asked by employers in a 45-minute webinar.
Q. Where can I find information on the Paycheck Protection Program?
A. The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $349 billion toward job retention and certain other expenses. Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards. The U.S. Department of Treasury has issued this information as assistance for small business.
ACTIONS TAKEN BY THE GOVERNMENT OF CANADA
Q. What actions has the government of Canada taken in response to the COVID-19 pandemic?
A. The government of Canada has taken significant action to stabilize the nation’s economy through its COVID-19 Economic Response Plan. It provides support to family, business and employees with tax credits, subsidies, tax deferrals and other benefits. It also establishes a $150 billion Insured Mortgage Purchase Program to facilitate continued lending to Canadian consumers and business.
The COVID-19 Emergency Response Act provides direct federal aid to businesses and employees impacted by the COVID-19 pandemic. It establishes the Canada Emergency Response Benefit that will provide employees, who have lost their income because of CONVID-19, with $2,000 a month for the next 16 weeks. It provides eligible small employers with a wage subsidy for up to three months to keep their employees. Prime Minister Justin Trudeau expanded the Canada Wage Subsidy Program on March 30 to provide a 75% wage subsidy on the first $58,700 of a person’s salary for all businesses and nonprofits that have seen at least a 30% drop in revenue because of the pandemic. The Minister of Finance will also have more flexibility to determine the capital limits for the Business Development Bank of Canada.
The act is intended to consolidate previous directives and initiatives into a one coordinated and focused federal response.
Q. What actions has the Bank of Canada taken?
A. The top priority for the Bank of Canada is to establish an economic “bridge” for Canadian businesses, employees and families. This includes ensuring that credit is affordable and available for businesses negatively impacted by COVID-19. It has lowered interest rates and expanded purchases of Canada Mortgage Bonds.
Q. What other actions have been taken to provide relief for businesses in Canada?
A. As announced by Prime Minister Trudeau, the Business Development Bank of Canada and Export Development of Canada has established a new Small and Medium-sized Enterprise Loan and Guarantee Program to provide $40 billion in additional lending to small and medium-sized businesses during the COVID-19 crisis. To be eligible, businesses must have been directly or indirectly impacted by the current pandemic and must have been financially viable prior to the outbreak.
The federal government has established a general homepage on Canada’s response to COVID-19 pandemic: COVID-19, Canada’s Response. It includes updates on the outbreak, travel advisories, such as restrictions on non-essential crossings at the U.S. border, economic support and more.