How the Coronavirus is Impacting Commercial & Business Real Estate
After years of robust growth in commercial property rental rates, occupancy levels and price appreciation, the landscape in South Florida has plunged into widespread uncertainty due to the impact from the coronavirus.
Property owners face significant challenges with respect to receiving monthly rental payments as commercial tenants with “non-essential” businesses have ceased operations without knowing when, or if, they will reopen. This has affected not only local-based small businesses but also national companies as evidenced by the Cheesecake Factory putting landlords on notice that they will not be able to make rent payments as of April 1st.
In addition to companies like the Cheesecake Factory, hundreds of national retailers announced an indefinite extension of store closings. Some of the more familiar names include Apple, Sephora, Bed Bath & Beyond, Dick’s Sporting Goods and TJ Maxx. In addition to retail businesses, the theme parks and resort hotels at The Walt Disney World Resort in Orlando, Florida have closed “until further notice”.
Beyond the retailers themselves, shopping malls across the entire state of Florida have been ordered closed by government mandate. Local South Florida mall closures include:
- The Gardens Mall
- The Mall at Wellington Green
- Aventura Mall
- Coral Square Mall
- Miami International Mall
- Town Center in Boca Raton
- Sawgrass Mills
Experts have indicated as many at 15,000 stores will permanently close this year making 2020 a record year for retail store closures.
This level of uncertainty puts an extreme amount of stress on the financial statements of commercial real estate owners, leading to uncertainty in making debt service payments to their lenders. As a result, we are starting to see that lenders are offering payment deferrals to help bridge the gap.
The CARES Act
With the passage of the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), some relief could be on the way. With more than $375 billion set aside to help small businesses through Small Business Administration (SBA) loans, business owners could use a portion of these funds for lease payments which will mitigate the potential downward spiral in the commercial real estate market.
The Paycheck Protection Program (“PPP”) is the section of the bill that provides for up to eight weeks of cash-flow assistance through 100% federally guaranteed loans. This program differs from an SBA disaster loan as small businesses, sole proprietorships, independent contractors, and self-employed individuals can all qualify. Small businesses are generally those with 500 employees or less.
Generally speaking, the loan is tied to the items shown below during a one-year period before the loan. Loans can be made up to a maximum of $10 million.
- Payroll (excluding compensation above $100,000) and commission payments
- Group health care benefits / insurance premiums
- Mortgage, rent and lease payments
- Utility payments
- Interest on other debt obligations that incurred before covered period
Proceeds from the loan can be used for payroll and insurance premiums as well as mortgage interest and utility payments. Loan forgiveness is possible and equal to the amount spent during an 8-week period after the loan origination date.
Other provisions affecting businesses include:
- Employee Retention Tax Credits
- Delay of Payment of Payroll Taxes
- Net Operating Losses Modification
- Increase in the Limit on Business Interest Expense
Are You in Need of Help?
If you are a commercial owner or small to medium-sized business that has been adversely impacted by the coronavirus, there are things that you can do to alleviate some of the burden during this trying time. Businesses can attempt to negotiate lease payments deferrals from their landlords while commercial property owners can inquire about possible forbearance programs from their lender.
Our team at Quantum Realty Advisors has assisted clients through a number of economic downturns since the early 1990’s. If you would like to discuss options and alternatives for your business or commercial real estate obligations, please contact Chris or Amy Losquadro at your earliest convenience.
Quantum Realty Advisors, Inc. is family-owned and operated real estate company and are here to help in your time of need.
Disclaimer: This information is provided for educational purposes only and obtained form sources deemed reliable but not guaranteed. This information does not represent legal advice. We do not provide tax, legal or accounting advice. You should seek independent representation. If you need assistance finding representation we would be happy to help refer you to a qualified professional.