For many real estate firms, the passage of Coronavirus Aid, Relief, and Economic Security Act (CARES), a more than $2 trillion economic stimulus designed to help bolster the United States economy, brought some good news in an otherwise terrible month.
One real estate executive, Jeff Holzmann, CEO of real estate asset management firm IRM, doesn’t just see the passage of the CARES Act as good news. He sees it as a game-changer.
“I would say the most important thing that happened in commercial real estate in the last decade by far,” Holzmann says. “At the level that we operate, it’s not so much about working with a certain bank or a lender, we operate in the entire freaking country, and we are depending on huge scale relief that is the CARES Act.” For Holzmann, an owner of 112 rental apartment communities, the most significant benefit to the CARES Act might be the cash infusion that it provides his residents.
“We already see the immediate influence on people who live in our complexes that are simply not going to have the income to pay,” Holzmann says. “One of the primary provisions of the CARES Act is a one-time payment of about $1,200 [per person]. That is huge because it could at least save the month of April if people get it quickly.”
Additionally, the CARES Act extends unemployment benefits an extra $600 a week up to four months if people meet the criteria. “Our class B or class C tenants probably meet the criteria,” Holzmann says. “So these things are huge because another $600 a week is the difference between us staying in business or us not being able to sustain this multifamily operation.”
The Act also mandates forbearance of up to 90 days [assuming they meet certain conditions] for any other borrowers of federally backed multifamily mortgages. Also, it includes the Employee Retention Credit, which provides incentives to retain employees. “That’s an incentive for me as an employer, not to furlough or lay off my staff,” Holzmann says. “That’s important because if I started laying off my staff, that means we’re not able to do what we used to do last month or the month before, which at some point will trickle down to the service that these tenants are getting in their residential space.”
Another tax tweak allows firms to take net operating losses and carry them back. “So if you had a couple of profitable years, which most real estate operators had and now 2020 is going to be bad for you, you could take that loss and carry that to have some of your earnings from the previous years deducted,” Holzmann says.
The CARES’ Act paycheck protection loan allows two months’ worth of wages to be forgiven.
“What that means is that the government is loaning you money so you can pay payroll plus health and retirement benefits,” Holzmann says. “You will not have to pay it back. So if everything works well, essentially the government is going to pay my payroll for all of my employees for two months. That is monumental.”