Stimulus Talks Take On Huge Importance

With the economy still reeling from the effects of COVID and much of the population unemployed and facing expiring benefits and eviction, there is widespread consensus that another stimulus package is essential. Congress has heard from a huge spectrum of America on both sides of the aisle: their constituents, economists, past Fed Chairs Yellen and Bernanke, Fed Chair Powell, small business associations, fortune 500 CEOs, community groups, state and local government officials, and more. This is one of the most critical fiscal legislative moments in history. Washington is trying to push through their disfunction, partisanship and heated election year politics to craft a bill. With summer recess set for next week, it seems that this Friday is the deadline for an agreement (which will then take days to document and be voted on). The stakes are high for commercial real estate of course. Enhanced unemployment benefits and/or stimulus checks are critical for the apartment and retail sectors (and for the economy in general). The CRE council and some legislators are trying to include aid to commercial real estate owners, particularly those with CMBS loans. CMBS delinquencies are climbing (over 10% overall, with hotels over 25%). Servicers are unwilling to offer continued (or any) forbearance and borrowers are looking to Washington for relief. Congress is also being swayed by the hit to the hotel industry, which is a huge employer. The proposal taking shape involves banks providing preferred equity for 12-18 months of debt service, expenses and taxes. The preferred equity will be at a rock bottom rate of 2.5%. The loans will be guaranteed by the U.S. government. The preferred equity structure will not violate CMBS borrower covenants on additional debt. The negotiations are difficult and contentious, some participants are saying it is “50/50” that a comprehensive deal will get done. The stakes are high. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners