Real Estate Industry Alerts Tracker - January 8, 2021 Issue

Federal COVID-19 Relief Bill Passes

On December 27, 2020, President Trump signed into law the Coronavirus Response and Relief Supplemental Appropriations Act (the Act”), which includes numerous additional relief:

Second Round of Paycheck Protection Program (PPP)

  • Eligibility for the second draw is limited to borrowers that had originally received a PPP loan and used 100% of the proceeds of the original PPP Loan before the second loan is disbursed. Additionally, eligibility is limited to businesses with fewer than 300 employees that have had a quarterly decline in gross receipts of at least 25% as compared to the same quarterly period in the prior year.
  • Eligible borrowers included businesses, certain nonprofit organizations, housing cooperatives, veteran’s organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural cooperatives.
  • Maximum loan amount is the lower of $2 million and 2.5 times the company’s monthly payroll.
  • Permitted expenses that may be forgiven for the second draw PPP loan now also include covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.
  • The process for forgiveness process for borrowers with PPP loans of $150,000 or less is being streamlined to include a one-page certification form created by the Small Business Administration and will not require the borrower to submit additional documentation (except in the event of an audit).

Emergency Rent Assistance
  • The Emergency Rental Assistance program makes available $25 billion to assist households that are unable to pay rent and utilities due to the COVID-19 pandemic. The funds are provided directly to States, and local governments, with each state receiving no less than $200 million.
  • Eligible households will receive up to 12 months of assistance, and if necessary an additional 3 months of assistance (if funds are available).

    • Relief is targeted at households at or below 50% of the area median income (AMI), or where one or more members of the household were unemployed for at least 90 days.
    • Landlords/owners can assist or apply for rental assistance on behalf of renters.

Fannie Mae and Freddie Mac Extend Forbearance Program for Multifamily Borrowers Through the End of March

Fannie Mae and Freddie Mac recently extended their forbearance programs for multifamily borrowers that have been impacted by the pandemic through March 31, 2021. Both programs were set to expire on December 31, 2020. Multifamily borrowers with properties financed through Fannie Mae or Freddie Mac may continue to defer loan payments if they can demonstrate a COVID-related hardship and obtain lender approval. Borrowers taking advantage of these programs are required to suspend all tenant evictions during the forbearance period. The Freddie Mac forbearance program also requires borrowers to provide flexible re-payment plans to tenants and halt any late fees or penalties for non-payment of rent.

Additional information may be found here and here.

New York Extends Residential Evictions and Foreclosure Moratorium Until May 1

On December 28, 2020, Governor Cuomo signed the COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020 (the Act”). The Act places a moratorium on certain residential evictions and foreclosures until May 1, 2021. To be eligible for the eviction protections, tenants must provide a declaration showing a COVID-related hardship. Landlords are not barred from evicting tenants that create health or safety hazards for other tenants, or tenants that fail to submit the required hardship declaration. The Act also places a moratorium on foreclosures of single family homes and residential apartment buildings of 10 or fewer units if the owners of such properties file a similar hardship declaration with their lender. Local governments are also prevented from engaging in tax lien sales or a tax foreclosures until at least May 1, 2021, although tax payments must still be made during that period.

Additional information may be found here.

Federal Reserve Performs Mid-Year Stress Test; Losses Expected for Large Banks

As a result of the economic and market volatility caused by the pandemic, for the first time, the Federal Reserve has performed a mid-year stress tests on banks. The stress test projected estimated losses of $514.3 billion (up from the Year-End Severely Adverse Scenario estimate of $432.5 billion). The test found that commercial real estate loans and first-lien mortgages will be the biggest contributors to the projected losses. The year-end estimates (as of the 4th quarter of 2019) projected commercial real estate loan losses of $47.6 billion, while the mid-year results (through the 2nd quarter of 2020) revealed estimated losses of $98.3 billion – a 107% jump. The estimated losses for first-lien mortgages from year-end 2019 to mid-year 2020 increased by 33% from $19.4 billion to $25.8 billion.

The stress test results indicated that large banks would be able to withstand a prolonged downturn while maintaining strong capital ratios. However, the Federal Reserve elected to continue limitations on dividend payments and share repurchases into the first quarter of 2021, and possibly longer.

Additional information may be found here.

CMBS Special Servicing Rate Declines Further In December

According to Trepp, the CMBS servicing rate declined 35 basis points in December, 2020 to 9.81%, down from 10.16% in November, 2020. The significant decline is mostly attributable to:
  • Lodging sector: special serving rate dropped 149 basis points in December to 24.07%.
  • Retail sector: special servicing rate dropped 27 basis points from November to 17.20%.

Sixty loans, with an outstanding balance of $1.26 billion were sent to special servicing in December, of which 42% were retail loans and 28% were lodging loans.

A copy of the Trepp report may be found here.

Federal Tax Issues Arising in Connection With Real Estate Distressed Debt Workouts

The pandemic is having a profound effect on commercial real estate. Kelley Drye’s Tax team recently published a client advisory on selected federal tax issues arising in connection with real estate distressed debt workouts, including:
  • Foreclosures and deeds-in-lieu of foreclosure
  • Debt-for-debt exchanges
  • Modifications of a debt instrument

To read our full advisory, click here.