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COVID-19 Issue Brief

Coronavirus disease, or COVID-19, is an infectious disease caused by a new virus. It causes respiratory illness with symptoms such as a cough, fever, and difficulty breathing, and can be fatal. To combat the spread of the virus, federal, state, and local governments and health officials are implementing unprecedented measures, including “shelter-in-place” directives, closures of non-essential businesses, and limits on public gatherings and travel. These actions are vital to help ensure the safety of the American public, but are putting tremendous strain on the economy and could have long-lasting consequences.

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In response to the coronavirus pandemic, federal, state, and local governments have taken unprecedented steps to limit the spread of the virus. Across the country, communities are restricting non-essential activities, and forcing large numbers of businesses to temporarily close. Activity at government agencies – from permitting offices to courts – have also been curtailed or halted altogether, making it harder for businesses to function. With customers staying home, companies of all sizes and types are facing significant cash flow issues. The ripple effect has touched firms in nearly every industry, and is making it increasingly difficult for businesses – and their employees – to meet their obligations.

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Since early March, Congress has worked to fast-track multiple pieces of legislation designed to address the COVID-19 outbreak. (Note: this section is intended to only highlight action taken at the federal level. NAIOP has compiled a separate document outlining the response at the state and local level.)

The so-called Phase I bill, passed and signed into law on March 6, provides Small Business Administration loans to impacted businesses through the Economic Injury Disaster Loan Program; directs some $8 billion in funding to federal agencies to ensure the affordability of future COVID-19 vaccines; and loosens restrictions on over-the-phone consultations between Medicare recipients and their providers.

Phase II, enacted March 18, puts into place new paid sick leave options (for firms with fewer than 500 employees), and creates tax credits to offset costs associated with paid leave and healthcare plan expenses.

A Phase III bill was passed unanimously by the Senate on March 25, and approved by the House of Representatives on March 27. The more than $2 trillion relief package provides economic support to distressed businesses, individuals, and the nation’s healthcare infrastructure, and includes several provisions that affect the commercial real estate industry. Among other features, the legislation:

  • Provides a technical correction to the Qualified Improvement Property (QIP) cost recovery drafting error in the 2017 Tax Cuts and Jobs Act (TCJA). The error resulted in longer depreciation periods for QIP than were intended by lawmakers, dramatically increasing the after-tax cost of making these investments.

  • Temporarily allows a 5-year carryback of Net Operating Losses (NOL) in taxable years starting in 2018, 2019, and 2020 (REITs are not eligible under this rule). Also fixes a second drafting error that adversely affects firms with a non-calendar fiscal year, and which had an NOL in 2017.

  • Expands eligibility requirements for Small Business Administration (SBA) loans to include firms with 500 or fewer employees; increases the cap on each loan, from $2 million to $10 million; and clarifies that loans may be used to cover payroll, mortgage payments, and rent and lease obligations. Further, states that emergency small business loan debt, when forgiven, is excluded from income, and allows for the complete deferment of such loans for at least 6 months.

  • Increases the cap on the deductibility of interest expense, from 30 percent of EBITDA to 50 percent.

  • Creates an employee retention credit for businesses ordered by their state or local government to completely or partially close, of up to $10,000 per employee, per quarter. (Employers receiving a small business loan as outlined above are not eligible for the credit.)

The bill also allocates $250 billion for unemployment insurance; $500 billion for larger companies suffering economic damage (with $50 billion earmarked for airlines); $150 billion in stimulus funds for state and local governments; and $130 billion for hospitals, medical supplies, and other healthcare funding. For individuals, cash payments in the amount of $1,200 per person, and $500 per child, will be issued. (Only taxpayers under a specified income level are eligible to receive the payments, which begin to phase out at $75,000 and $150,000 for single and joint filers, respectively, at the rate of $5 per additional $100 in income over these thresholds.) Finally, the legislation relaxes rules on retirement account withdrawals, and creates a new, $300 above-the-line charitable deduction, for taxpayers claiming the standard deduction.

In terms of monetary policy, the Federal Reserve has taken several steps to help ensure consumers and businesses have access to credit. Over the past few weeks, the Fed has lowered interest rates to effectively zero percent; announced an unlimited expansion of bond purchasing programs; created lending facilities to provide liquidity for outstanding corporate bonds and asset-backed securities (including student, auto, and credit card loans); and issued guidance encouraging private lenders to work with borrowers affected by COVID-19. The Treasury Department and Internal Revenue Service have also allowed taxpayers to delay federal income tax payments – usually due April 15 – until July 15.

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NAIOP believes that ensuring the health, safety, and welfare of the American public is paramount, and supports the unprecedented steps being taken by agencies at all levels to contain the spread of the coronavirus pandemic. Unfortunately, a byproduct of these necessary actions has been a wide scale freeze on domestic and global commerce, and the disruption of business operations across nearly every industry and sector, the effects of which must be addressed and mitigated.

Federal, state, and local governments should therefore ensure businesses are able to continue operating and putting paychecks in the hands of their workforce, whether through loans, grants, or other forms of direct aid, and take specific steps to ensure liquidity in commercial real estate markets. Further, regulatory bodies should provide additional relief; for example, by extending certain deadlines faced by real estate firms, such as those for like-kind exchange deals and Opportunity Zone funds, and by clarifying that temporary forbearance, deferrals, or modifications of mortgage loans in response to the COVID-19 outbreak will not trigger treatment as a restructured or delinquent loan.

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Talking Points

  • The commercial real estate industry is a key part of the American economy. CRE supports 9.2 million American jobs, contributes more than $1 trillion to GDP, and generates roughly $400 billion in salaries and wages annually.

  • “A landlord only does as well as his or her tenants.” This adage is proving especially true in the wake of the coronavirus outbreak, as commercial tenants experience sharp revenue declines.

  • Access to capital is the lifeblood of the commercial real estate industry. However, the disruption to tenants’ cash inflows means these businesses are increasingly unable to fulfill rent and lease obligations. Absent this revenue, property owners will, in turn, be unable to make loan and mortgage payments, as well as operations and payroll commitments.

  • Federal, state, and local governments must ensure these businesses are able to continue operating and putting paychecks in the hands of their workforce, whether through loans, grants, or other forms of direct aid.

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“Phase I” Legislation (Coronavirus Preparedness and Response Supplemental Appropriations Act)

“Phase II” Legislation (Families First Coronavirus Response Act)

“Phase III” Legislation (CARES Act), Latest Version


NAIOP Correspondence 

Letter in Support of Rubio-Collins Keeping Workers Paid and Employed Act 

Letter to Treasury Secretary Urging Extension of Like-Kind Exchange Replacement Property Deadlines 

Letter to Federal Reserve and Treasury Department with Recommendations on Expanding and Adjusting the Term Asset-Backed Securities Facility (TALF)  

Real estate coalition letter urging clarification of life risk-based capital treatment of mortgages affected by COVID-19 

Real estate coalition letter urging the creation of a COVID-19 recovery fund 


Additional Resources 

Financial Regulators Interagency Letter to Lenders: Best Practices Regarding Assistance to Borrowers

Federal Reserve: COVID-19 Update Page

White House: Coronavirus Guidelines for America

Centers for Disease Control and Prevention (CDC): Coronavirus Overview

Johns Hopkins Coronavirus Resource Center

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