WASHINGTON, DC-Come midnight Saturday April 9, the Democrats and Republicans in the House of Representatives will either have reached an agreement over funding of the government, or not. A few weeks ago--even a few days ago--the former scenario seemed the most likely.

As the zero hour approaches, though, there are real doubts as to whether they will. This week the Obama Administration instructed its agencies to start preparing for the worst case scenario, beginning with informing federal employees whether they are considered essential or not. Businesses and individuals that rely on government services and information are bracing for a federal government that has gone dark.

For the commercial real estate industry, the worst case scenario--a temporary shuttering of Fannie Mae and Freddie Mac--will not be realized. Freddie Mac will be open for business, a spokesperson tells GlobeSt.com. Businesses and homeowners that rely on the GSEs can thank--for once--its troubled finances for that: both the Bush and Obama administrations have kept Fannie and Freddie off the books in order to keep the fiscal ugliness to a minimum. The FHA and HUD, however, will be closed for the duration as will most--but not all--of the Securities and Exchange Commission. According to the Wall Street Journal the SEC will keep its essential market surveillance operations running. Ditto for Treasury and the IRS, which is still expecting tax returns to be post marked by April 18th. (Taxpayers expecting refunds, however that filed paper returns may find those delayed).

For the commercial real estate industry, those are the areas that will have the most direct impact. However the shutdown will have a far-reaching footprint on the industry and economy, perhaps deeper than many realize.

It is widely expected that a long government shutdown will throw a wrench into, and possibly reverse, the economic recovery. In ways large and small the absence of the government will be felt, in some cases immediately. Indeed, on Monday the Census Bureau is expected to release economic indicators that will remain locked in the government’s computers if funding is not extended.

"For commercial real estate interests, no good can come from a shutdown of the federal government. How much harm would be done is partly a matter of speculation, partly a matter of looking back at past shutdowns, and partly a matter of how long a shutdown would last," Carl Schwartz, chairman of the commercial real estate practice at New York City-based law firm Herrick, Feinstein, tells GlobeSt.com. "Some of the damage could be direct, and some indirect, but harmful nonetheless. “Uncertainty, akin to what the market was feeling in 2008 if the shutdown lasts long enough, would wear down on the market," he adds.


Schwartz also points out that the courts will slow down, if not cease altogether for the duration. “The lack of judicial attention will negatively affect the market for distressed real estate and paper because, presumably, real estate deals in bankruptcy settings will be put on hold," Schwartz explains. "So debtors and creditors may be unable to resolve their bankruptcy-related issues, and opportunistic buyers may miss some opportunities, or at least see them delayed."

Finally, a shutdown is bound to worsen an already ugly political situation. Regulations for Dodd-Frank are being warily ironed out on the Hill and such negotiations, even after the government opens for business, are bound to be poisoned by a shutdown that generates even more acrimony.