With No Pre-Election Relief Deal, Congress Leaves Landlords And Tenants Dangling From A Cliff

Despite intense advocacy on the part of retailers, restaurants, hoteliers and landlords of all property types for Congress to pass additional stimulus before the Nov. 3 election, the U.S. Senate headed into recess this week with no deal, leaving landlords and tenants hanging without support as they enter a potentially dire season for the coronavirus.

The nation's top infectious disease expert, Dr. Anthony Fauci, is predicting tough winter months as the pandemic rages in the midst of the holiday season and as  a vaccine remains elusive. Other factors could make the season even more bleak for the commercial real estate industry, such as delinquency deferral periods ending and previous relief funds running out for individuals and companies alike.

Bisnow spoke to experts and lobbyists from the restaurant, retail and multifamily industries and found widespread fear about the future without immediate federal support. Many people were pinning their hopes on Congress stemming the tide of distress before the election, but Congress has thus far failed to pass some version of the Health and Economic Recovery Omnibus Emergency Solutions, or HEROES, Act.

Democrats in the U.S. House of Representatives passed a $2.2 trillion version of the bill proposing more stimulus payments to individuals, an extension/expansion of unemployment benefits, relief for renters, mortgage assistance, $120B specifically for restaurants and $10B for performance venues. 

Meanwhile, the Senate drafted its own $1 trillion stimulus, balking at what many senators viewed in the House's relief package as pork-barrel spending tied to special interests outside areas of critical need. 

A $1.8 trillion White House proposal was unable to break the impasse, leaving commercial real estate assets depending on government-supported rent relief and other financial aid in a tough spot heading into the winter months and little optimism that relief will come at all in 2020. 

“The Senate is adjourned through the election; they are not coming back, so Congress is already beginning to look solely to the election and they are leaving a lot of restaurants literally out in the cold right now," National Restaurant Association Executive Vice President of Public Affairs Sean Kennedy told Bisnow. "We are really concerned that with each passing week, dozens, if not hundreds of restaurants, are going to shut down operations for good."

Kennedy estimates 100,000 restaurants have already shuttered their doors this year, and with each closing, landlords lose another tenant and a consistent stream of cash. 

Restaurants, many of which are key tenants for shopping centers and landlords, aren't alone in their frustration. Other tenants and associations representing retailers and multifamily assets have pushed hard for additional stimulus checks, renter aid and financial relief for distressed industries that remain critical to commercial real estate's survival. Yet, Congress remains gridlocked with the General Election just days away.

When Congress returns in mid-November, it will be in a lame-duck session until the new year, leaving a great deal of uncertainty around how outgoing representatives or incoming legislators in January will construct and vote on a coronavirus relief package. 

The National Restaurant Association, the National Retail Federation and the National Multifamily Housing Council all support additional rounds of Paycheck Protection Program funds to keep businesses and payrolls going, and they are advocating for Congress to offer some sort of PPP relief before the year ends even if their own wish lists are put on hold until next year. 

"We have been really clear in saying: 'If you can't do something big, at least do something small,'" Kennedy said. "Pass another round of PPP and go home for the election and go home for the year ... at least that gives us some breathing room so we can survive this winter, and then when you come back in January, you can then hopefully craft a more comprehensive bill and we will still be around."

Aside from their vast support for more PPP, restaurants, retailers and multifamily interests say there are numerous hidden policy items packed inside congressional bills that they hope policymakers will reconsider after the election or early next year to keep businesses going. 

3 Policy Items Are Critical To The Future of Restaurants 

If restaurants could get Congress to pass any stimulus package they desired, the industry would ask for a second round of Paycheck Protection Program lending, passage of the Senate's version of the pending RESTAURANTS Act and liability protection from coronavirus-related lawsuits for any business sued by a customer who contracted the virus as long as the defendant restaurant followed all applicable federal and state safety guidelines, Kennedy said. 

A bill is already pending in Congress, offering a safe harbor for heavily trafficked businesses that are sued over virus infections, but it has failed to move forward. 

The National Restaurant Association prefers the Senate's version over the House's of the RESTAURANTS Act, which in effect sets up a $120B recovery fund to aid struggling restaurants with rent and other expenses.

"The Senate [version of the bill] provides support for any business model in the restaurant industry that is suffering ⁠— chains, franchises and independents all are eligible," Kennedy said. "The House version leaves a lot of restaurants, particularly from a commercial real estate perspective, out. It leaves out chains, and it leaves all franchises out."

Under the Senate version of the legislation, funding assistance would be available to all types of restaurant concepts as long as they own 20 restaurants or fewer, he added. 

With the restaurant industry down about 2 million jobs and on track to lose $240B in revenue this year, there is no type of eatery that is truly free from strife because of the pandemic, Kennedy noted. He said restaurants, whether chains or independents, work with an average of 16 days cash on hand, leaving little wiggle room for drops in sales.

"If you are a full-service restaurant, it doesn’t matter if you are a chain, an independent or a franchise, you are losing tremendous revenue," Kennedy said. "You are facing a growing number of bankruptcies and permanent closures, and you have a very uncertain future.”

Restaurants have a few other wish list items they hope lawmakers will take up in the new year, including a temporary change to the government's Supplemental Nutrition Assistance Program, so families using government food stamps are allowed to purchase restaurant items as opposed to being limited to grocery store purchases. 

NRA also is advocating for all workers in the nation's food supply chain, from restaurants to stores, to be first in line to receive a shot when an approved pandemic vaccine is readily available, to help restore confidence in communal dining areas. In addition, NRA wants federal and state lawmakers to streamline coronavirus case reporting and documentation procedures nationwide so consumers are better informed about what areas are experiencing virus outbreaks. 

Right now, the data in many areas provides conflicting reports, which chills the confidence of diners, NRA says. 

"If people don't feel safe and know what's going on with coronavirus cases, they are going to make decisions that may be ill-informed and that is going to impact our ability to keep our doors open," Kennedy said. 

Retailers Head Into The Shopping Season With Government Stimulus Waning

U.S. retailers big and small are also pushing for a second round of PPP lending when Congress returns from its lame-duck session after the inauguration since the program was critical in keeping retail tenants operational in the wake of the coronavirus outbreak, National Retail Federation Vice President and Tax Counsel Rachelle Bernstein told Bisnow. 

In addition to reinstating another round of PPP, NRF wants Congress to clarify whether PPP funds used to cover employee payroll can be deducted from retailers' payroll expenses to generate more liquidity as retailers are dealing with reduced traffic and declining revenue. 

And to keep retailers more liquid and better situated to cover rent and overhead expenses, NRF is supporting the Safe and Healthy Workplace Tax Credit, a proposal that popped up in both chambers of Congress this year but has yet to pass.  

The program would allow retailers to obtain credits on their payroll taxes to help offset the cost of having to respond to the pandemic through initiatives like the reconfiguration of their real estate assets or the installation of better air quality systems and the purchase of safety equipment, Bernstein said. 

"I have one retailer who told me that through the spring and summer, it was costing them $1 per employee a day for masks and they had 30,000 employees. It was costing them $30K a day for masks," she said.

Retailers also want Congress to pass liability protection for businesses that follow federal and state safety guidelines so they are legally protected from lawsuits stemming from virus outbreaks tied to commercial premises. 

The NRF, much like the National Retail Association, has little confidence in Congress' ability to get a full package passed in the coming weeks but remains hopeful a comprehensive plan will be finalized by the first quarter of 2021. 

"I hope Congress if they can’t do it in the lame-duck session, they will do it early in the new year and hopefully that will get us onto a more positive trajectory than things might feel right now," Bernstein said. 

Multifamily Came Close To Ideal Stimulus, But The Clock Ran Out

The multifamily asset class fared well under Congress' passage of the CARES Act earlier this year, but several months later, stress points are starting to emerge.

The National Multifamily Housing Council Rent Payment Tracker shows 90.6% of apartments made a full or partial rent payment by Oct. 20, in a survey of 11.4 million units. That is a solid return, but still down a full 1.8 percentage points, or 199,224 households, from October of last year, NMHC says. 

Like retailers and restaurants, NMHC has a wish list of what apartment owners and tenants need from Congress to keep financial stress in the multifamily asset class to a minimum.  

The House came close to what apartment owners and renters want with its $2.2 trillion HEROES Act, which included all of the components NMHC desires in an economic stimulus package minus a few critical exceptions, NMHC Vice President of Government Affairs Kevin Donnelly told Bisnow. 

NMHC hasn't endorsed either the House or Senate's HEROES Act, but Donnelly said the House version of the bill offers rent aid, an extension and expansion of additional unemployment benefits, stimulus checks and another dose of PPP, all of which were effective in keeping multifamily tenants and landlords solvent when they passed as part of the CARES Act when the pandemic first hit. 

"The dedication of a rental assistance fund in conjunction with the unemployment benefits, stimulus payments, support for PPP and small businesses, that is the recipe for success that we need to ultimately see implemented," Donnelly said.

NMHC does object to one part of the House's version of the HEROES Act since it proposes a nationwide eviction moratorium, a move that could upset the capital markets backing multifamily.  

"Without addressing the underlying financial stress, we believe eviction moratoriums across the country are really setting up an untenable situation for both property owners and renters, so it's not an easy black-and-white question for us," Donnelly said. 

Still, NMHC hopes a compromise can be struck between the House and Senate when they return to ensure rental assistance is enacted again. 

"What we have prioritized is continued strong financial assistance to our nation's renters as the first line of defense," Donnelly said. 

CORRECTION, OCT. 29, 9 A.M. CT: A previous version of this story contained the wrong figure for the amount of revenue the restaurant industry is expected to lose this year. The number has been revised.