Headlines this week:
- Washington DC: Congress and the White House struggle to create yet another COVID stimulus package costing about $1.5 Trillion.
- European leaders agree on a nearly $900 billion stimulus package after difficult negotiations.
- U.S. Dept of HHS makes a deal to purchase 100 million doses of a promising vaccine from Pfizer with an option for 500 million more doses(to be distributed free of charge).
- Negative economic trends continue in July as virus spikes cause re-closing of many small businesses, predictive statistic trends start to trend downward after rising in May/June (airline and hotel bookings, Apple map searches, etc).
- Businesses that received PPP funds can soon layoff workers without having to pay back the loans. National Federation of Independent Businesses survey showed 653,000 businesses plan to lay off workers near end of July without further assistance (70,000 businesses said they plan on laying off 10 or more workers).
- Federal unemployment benefits expire next Friday.
- As commercial flight passenger volume decreases, speculation mounts that the major airlines will lay off huge chunks of their workforce on October 1. That’s the first day they are allowed to layoff workers and keep the billions of dollars of aid they received in an early Covid stimulus bill.
- Home loans with FHA guaranteed mortgages are in a foreclosure and eviction moratorium that was extended from June 30 to August 31. This could hurt landlords, homeowners and tenants. Eviction moratoriums put huge pressure on landlords. Note that the CRE Council is working on a $400 billion proposal to allow the Federal Reserve to take a preferred equity stake in commercial properties by advancing troubled borrowers of hotels, malls, etc one year of debt service, taxes, and operating expenses.
All of these deadlines or “cliffs” expiring during a rough patch for the economy could result in a wave of evictions, layoffs and foreclosures. Federal Government aid and/or legislation will be necessary to extend these deadlines. When will the economy be able to function without these extraordinary measures?
It seems that the calculus is as follows: the virus is proving difficult to control until an effective vaccine is widely available and the fall/winter flu season is only 2 months away. “Normal” consumer behavior (movie theaters, malls, conventions, normal business travel, hotel occupancy) is most likely completely dependent on said vaccine. The question in Washington this week and next is how much and how long? Will it be enough to carry the water until the vaccine? And even after the vaccine comes, there are long term and permanent effects that will affect commercial real estate for years to come. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners