Coronavirus-related economic shutdowns throughout the U.S. caused businesses to close, revenues to plummet and owners to question whether they could afford their rents leaving the fate of the commercial real estate industry uncertain.
“We’ve not seen the full ramifications of the pandemic,” Pierre Debbas, co-managing partner and founding member of Romer Debbas, told FOX Business. “[PPP loans] served as a Band-Aid for many small businesses over the last couple months.”
Business owners have until Aug. 8 to apply for an initial round of funding through the Paycheck Protection Program and for many small business owners that loan likely would not be enough to keep them afloat -- and in their rented spaces -- permanently.
Rent is a qualified expense under the loan’s terms, but 60 percent of the funding must be put toward payroll in order for the cash to be forgivable.
The ability to apply for a second PPP loan may not solve the problem, either.
“It will definitely help but there’s such uncertainty and unknowns for how long this will go on for,” Debbas said, adding there is the possibility of a second wave – and a second round of shutdowns.
Fitch Ratings reported the largest-ever, one-month increase in delinquencies in commercial-mortgage backed mortgage securities between May and June, with the highest rates seen in the accommodation and retail industries.
How the overall situation plays out, however, may be dependent in large part on how flexible banks are willing to be with property owners. Landlords can only help their tenants as much as banks will allow, Debbas pointed out.
And the country’s major banks appear poised for a wave of loan defaults. JPMorgan, Citigroup and Wells Fargo all said they had been stockpiling away billions of dollars in the second quarter in preparation for defaults in their consumer and commercial divisions, as reported by The Wall Street Journal earlier this month.
On Monday, Republicans revealed their proposals for another round of stimulus, including a second PPP.
The second wave of loans would have different criteria, targeted more toward smaller businesses that have been hardest hit by the pandemic. About $190 billion worth of PPP funding would be made available to business owners with 300 employees or fewer whose revenue declined by at least 50 percent as a result of the coronavirus pandemic.
In this round, the maximum loan size would equal 2.5 times the average total monthly payroll costs, up to $2 million.
The range of costs considered forgivable under the terms of the “sequel” PPP program would be expanded to include expenses related to protecting both employees and customers and other costs like implementing outdoor seating at restaurants.
Sixty percent of the money, however, would still be expected to be allocated toward payroll expenses.
The HEALS Act also includes provisions for a separate loan program that is intended to aid seasonal businesses and other companies located in low-income communities. In order to be eligible for this program, the business must have 500 employees or fewer and must be able to show a 50 percent loss in revenue.