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Real Estate - Key Points from the CARES Act Affecting Real Estate Development

Events unfolding every day, over the last few weeks, have essentially changed our collective way of living, working, and communicating. The Bonadio Group's Real Estate Development Team is committed to helping you get through this. We've compiled the following items that we believe will be most important to you at this time.

The Coronavirus Aid, Relief and Economic Security (CARES) Act became law on March 27, 2020:

  • Provides up to $10 million in loans to qualifying businesses for the covered lending period of February 15, 2020 through December 31, 2020.
  • Section 4023 of the CARES Act details forbearance of residential mortgage loan payments for multifamily properties with federally backed loans. Multifamily borrowers receiving forbearance may not, for the duration of the forbearance, evict a tenant or charge late fees.
  • In general, applies to businesses with 500 or fewer employees. Some industries (e.g., franchise industry) are exempt from this rule.
  • Loans provided in amounts up to the lesser of 1) two and a half months of payroll costs plus any outstanding amount of SBA Economic Injury Disaster Loan (see below) obtained on or after January 31, 2020, or 2) $10 million.
  • Qualified applicants are not required to provide personal guarantees or collateral security to obtain the funds, and the SBA will not charge any fees for these loans.
  • Borrowers may be eligible for loan forgiveness in an amount equal to the sum of certain permitted costs, such as payroll, rent and utilities, and interest payments on mortgages measured over an eight-week period.

On Tuesday, March 31 at 2:00, The Bonadio Group hosted a client webinar on the CARES Act specifically related to the individual and business tax laws. The link to our recording can be found here.

The Small Business Administration (SBA) Economic Injury Disaster Loans:

  • Available for qualifying small businesses for loans up to $2 million.
  • The CARES Act modified terms:
    • Relaxing the eligibility criteria.
    • The SBA will not decline a loan due to a lack of collateral.
    • The requirement for a personal guarantee is waived for loans up to $200,000.
  • Borrowers may receive a $10,000 emergency advance while their application is pending, and they are not required to repay that advance if their loan application is denied.
  • Loans may be applied for, in addition to the loans discussed above, if businesses need assistance with working capital other than payroll and those included in the CARES Act program.

The Bonadio Group held a webinar to discuss the provisions of the SBA program and CARES Act (prior to the CARES Act being signed), and the materials are available here.

Other Liquidity Considerations:

  • Taxpayers who owe 2019 and 2020 estimated taxes have been given basically an interest-free loan with the extension of the tax due date to July 15, 2020. Taxpayers should consider taking advantage of this.
  • The CARES Act includes other provisions that all real estate clients should be aware of:
    • Qualified Improvement Property (QIP) Technical Correction - changes the depreciable tax life from 39-years to 15-years thereby allowing such property to be eligible for the 100% bonus depreciation for QIP placed in service after December 31, 2017. This is a huge correction for the industry that we have been waiting for since the Tax Cuts and Jobs Act (TCJA) was passed and should be immediately considered.
    • Net Operating Loss (NOL) Carryback Allowed - net operating losses created in taxable years before January 1, 2021, are allowed to be carried back for five years and no longer be limited by 80% of taxable income.
    • Modification of limitation on business interest for partnerships - the CARES Act has increased the amount of interest expense deduction allowed depending on the business structure.
    • More information on these changes can be found here.
  • Cost segregation studies are an excellent option in order to accelerate deprecation. Contact an MS Consultants cost segregation study specialist to see if it makes sense for a study on any building that you own. Visit this cost segregation website today.
  • Write-off repairs using the safe-harbor de minimums rules. Businesses can write-off items up to $2,500 or $5,000 per unit (depending on your situation).
  • Tax credits for energy-efficient buildings - Sec. 179D and Sec. 45L were recently extended.

Employees:

  • Employees are likely working from home, so hardware/software needs should be addressed, including: cybersecurity elements of remote work.
  • Communication is key - now more than ever. Consider ways to communicate with your people virtually, including face-to-face communication. This will be pertinent during this time to ensure your people have the resources they need and feel that you are supporting their well-being.
  • Many people are struggling with everything that is going on, including some of your workforce. Offering Employee Assistance Programs (EAP) can help with a variety of things including counseling, financial assistance, parenting, elder care, and even pet care. Reach out to your payroll or HR provider for more information if you do not have an EAP in place.
  • The CARES Act includes:
    • An employee retention credit to employers subject to closure as a result of COVID-19 in the form of a fully refundable 50% tax credit applicable to the employer's share of payroll taxes for wages paid after March 12, 2020, and before January 1, 2021.
    • The ability to defer payment of the employer's share of federal Social Security tax on its employees' wages paid as of the date of the CARES Act through December 31, 2020.
  • Other updated resources can also be found on our Articles and Events page.

Tenants:

  • Your residential tenants may be out of work, thus hindering their ability to pay rent. There are many businesses, including food manufacturers, grocery stores, and personal shopping businesses that are thriving and looking for workers. We are happy to provide information and connections we have with other clients who are looking to fill jobs if you'd like to provide this information to your tenants.

We are here to help. We've compiled the information above from a variety of sources and are happy to further discuss any and all issues you are experiencing. Please don't hesitate to reach out to a member of our real estate team with the corresponding links below.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.