Los Angeles

The paycheck protection program under the CARES Act will help to provide relief to small businesses suffering from mandated closures and loss of business due to the coronavirus pandemic. An expansion of the small business loan program, PPP loans will provide 2.5 times the monthly payroll up to $10 million for businesses with less than 500 employees, and it is potentially forgivable. Many landlords are requiring tenants apply for PPP loans to receive rent relief.

“Real estate is so dependent on the liquidity in the credit markets, so anything that is done to prop-up the credit markets will strengthen the real estate markets,” Craig S. Coan, an attorney at Greenberg Glusker, tells GlobeSt.com. “The ability to get the PPP loans, assuming that the are made available sooner rather than later and assuming that the amount that is available is close enough to get people moving forward, will be helpful. In order to give rent deferrals, a lot of landlords are requiring that tenants apply for these loans. They also want tenants to pay something from the loans toward their rent.”

While many landlords are requiring the funds to provide rent relief to tenants, not all are. In fact, some are simply deferring payments until the pandemic is over without requiring PPP payment. “There are other landlords that are deferring rent until the tenant gets back on their feet; however, there are some lenders that are tying deferrals to the PPP funds,” says Coan.

While the program will no doubt be helpful, the PPP funding will likely not cover the vast demand from businesses. “From what I understand, the amount available will not come close to covering what has been requested or what has been applied for,” says Coan. “It people are getting 25% of their ask, then there has to be more money made available. The legislators are waiting to see what progress has been made in testing before they decide how much more to put out there.”

For now, Coan is working closely with his clients to reduce operations costs so that they can survive the pandemic. “We are trying to position their cash flow in a way that they will be able to operate efficiently until they get the PPP funds,” he says. “From a commercial real estate stand point, there are some opportunistic investors looking for discounted properties because there are people that may need to sell off some properties to maintain their liquidity.”

With tighter business practices and the PPP funding, Coan expects that many businesses will pull through, assuming that the economy opens back up soon. “If you have a strong business, strong product and good management, you should be able to come out of this,” says Coan. “The weaker companies and the ones that were struggling before, will not. It will be a test for companies to see who will survive. Some will not make it because of this. As long as the credit markets can provide liquidity, the stronger ones will survive. It really depends on how long this lasts.”