Below is a list of 8 actions we believe real estate businesses should consider during this current crisis in order to minimize challenges down the road.
1. Contact your Lenders– Since banks are in a much better financial position than they were in the last recession they are going to, possibly, be able to help. They may have the ability to defer payments, extend maturity dates or go to interest only. Also discuss with them the possibility of not meeting already defined loan covenants or potential delays in providing required documentation.
2. Wellbeing of Your Employees – Work with your HR advisor to create action plans to address sick leave, layoffs, furloughs, union employee rights, etc. Understand HIPPAA compliance and other privacy concerns in releasing information related to positive COVID-19 situations. As always, you should consult with your legal counsel before implementing major policy changes.
Review the newly approved Family First Coronavirus Act (FFCRA) and understand what your requirements are and what help FFCRA can provide to help both your business and employees get through this. The law requires cash payments to employees for paid sick leave under certain conditions (click here for additional details). 100% of the wages paid to employees that qualify under the FMLA and paid sick leave requirements will be returned to employers in the form of a payroll tax credit.
3. Create a New Budget – Many of you create annual budgets anticipating rents, operating expenses and cash flow. It’s time to adjust them based on where the Company is today. One thing to consider is the impact on collections. What are your tenants, buildings under management or real estate customers experiencing.? If rents/sales and cash flow are expected to be seriously affected, look at your costs. What are your fixed costs that occur regardless of the results of your operations such as loan payments, taxes and insurance? What are ‘non-essential’ costs that can be reduced or eliminated entirely? What will you need to survive and for how long? When some federal and state aid is forthcoming this is going to be the measurement of what you can ask for and possibly receive.
4. Review Insurance Policies – Insurance policies vary, and you need to know what is covered. Review policies to determine the scope of coverage, including potential claims for business interruption, lost rents, workers’ compensation, contamination and employment practices.
5. Touch base with your tenants – It will help you to understand the financial stability of your lessees if possible. Perhaps you will be able to extend credit terms but in worst case understand when and how you are going to get paid. It may be worth considering offering to allow for financially distressed tenants to use security deposits as rent payments and then replenish the security accounts once they are stabilized. It’s advisable to consult your attorney and put these types of agreements in writing.
6. Notify municipalities and governmental agencies where necessary – You may have contractual obligations to provide financial data or other information to municipalities or governmental agencies for incentives you have received such a PILOTs. These agencies should be notified if you will be delayed or unable to meet these requirements due to office closures or remote work.
7. Embrace Technology– While not an option for all real estate businesses, consider if you can still carry on with some aspects using enhanced technology. There are a variety of technology tools available that you can use to work remotely with both clients and employees (i.e. Zoom, Microsoft Teams, Slack, etc.) Consider if there are any services you can provide to customers under remote work conditions. Are there certain tasks that you can assign to employees to focus on now? While you may not be at your peak performance, 50% productivity is still better than zero.
Sadly, during these challenging times, cyber criminals have not stopped. As always, you need to be vigilant with your technological security and protect yourself against hackers who may be looking to take advantage of the current situation.
8. Government Aid Options
a. SBA Disaster Loan Assistance – SBA provides low-interest disaster loans to businesses of all sizes, private non-profit organizations, homeowners, and renters. If you have suffered substantial economic injury and are located in a declared disaster area, you may be eligible for an SBA Economic Injury Disaster Loan of up to $2,000,000 with lower interest and loan terms of up to 30 years. These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. However, keep in mind that taking advantage of the SBA loan assistance may preclude grants or other government assistance.
b. State and Local Disaster Assistance – In past state of emergency situations states and local governments have set forth programs. Keep abreast of possible assistance here as well.
c. Stay Alert for Tax Credits and Government Grants – Many lawmakers are saying that ‘help is on the way.’ Stay connected with WG for additional information as the latest legislation is enacted. This relief may include grants and forgivable loans to help business continue to fund payroll and operations.
d. Look for potential tax relief with a significant impact to real estate– Many transactions may be more difficult to close timely in the current climate such as reinvestments for 1031 exchanges and qualified opportunity zones. It’s possible the Federal government could allow for extensions to complete transactions when additional relief is issued among other real estate specific relief. Additionally, changes in the interest expense limitation, allowance of net operating loss carrybacks and the reinstatement of bonus depreciation for Qualified Improvement Property could be included.