The $900 billion COVID-19 relief package passed on December 21 contains several measures that will support the commercial real estate market in 2021. The legislation increases disposable income through direct checks and unemployment benefits, provides $25 billion for rental assistance and allocates $69 billion for COVID-19 testing and vaccine distribution, which will help to spur economic activity.
Prominent among the components of the new bill is a one-time distribution of $600 to Americans making less than $75,000 per year and a resumption of additional federal unemployment benefits. The direct payment will be $1,200 for married couples making up to $150,000 and $600 for each dependent under 18 living in the same household. This should benefit the economy broadly, but certainly the multifamily and retail sectors. The CARES Act, the previous stimulus package approved in March, helped maintain commercial activity at a time of great uncertainty. About 64 percent of Americans spent their CARES Act stimulus checks on consumption or repaying debts, according to the Federal Reserve Bank of New York. The current economic outlook is more certain than it was in March, allowing risk-averse Americans to allot more of the one-time payment toward consumption or debt repayment.
Relief for Multifamily and Retail Sectors
The $300 per week federal unemployment benefit will also boost the multifamily and retail sectors. The previous CARES Act provided a $600 per week unemployment benefit starting in March. From April through September, retail sales increased 30 percent, eclipsing pre-pandemic levels. They have fallen since, in part due to the benefit ending in July. While the newest unemployment relief is half the weekly disbursement of the earlier benefit, the supplemental income should help restore consumer spending. Unlike the summer, however, rising virus cases across the country may hamper retail resilience as consumers fear in-person shopping.
For renters and landlords, the unemployment benefit is helpful to prevent evictions and rent troubles many have feared. In April 2020, 95 percent of apartment households living in professionally managed units made a full or partial rent payment, versus 98 percent in April 2019. Payments persisted in the 95 to 96 percent range through most of the year, in part due to the $600 per week unemployment benefit, though they dipped slightly below 95 percent since August, as COVID-19 infections surged, and federal unemployment benefits expired. A new dispersal of unemployment benefits will help many hard-hit Americans address deferred rent payments and essential expenditures. Even without complete assurance on how Americans will spend their check and unemployment benefits, or the tax credits for low-income families, the economics are simple: more cash in hand leads to more money circulating in the economy and a boost to retail and multifamily.
In addition to the broad economic boost from expanded benefits, the relief bill provides targeted help for commercial properties. For the multifamily sector, the bill allocates $25 billion for rental assistance and an extension to the federal eviction moratorium to Jan. 31, 2021. Tenants who meet eligibility requirements for federal aid can apply directly for aid, and landlords can also apply on their behalf. While institutional landlords appear to be in relatively good shape, the situation has not been as rosy for smaller “mom-and-pop” landlords and their tenants, who make up about half of the multifamily housing market. Estimates vary, but the National Council of State Housing Agencies (NCSHA) originally predicted that more than eight million renter households that are home to 20 million U.S. renters would owe up to $34 billion in past-due rent by January. How the $25 billion assistance works to alleviate that mounting debt will be determined in the coming months, but it should stabilize the sector, prevent mass evictions and provide relief to struggling landlords.
Benefits for Restaurants, Airlines and the Office Sector
For retailers, $284 billion will be allocated for the Paycheck Protection Program to further fund payrolls for small businesses, and expenses paid for with prior PPP loans can be written off, totaling over $100 billion in tax savings for PPP recipients. Less-publicized features of the bill allocate help for commercial properties heading into 2021. Restaurants, which have been battered by the pandemic and stay-at-home orders, may benefit from the increase in the tax write-off for corporate meal expenses from 50 percent to 100 percent. In theory, the tax break will encourage further spending on take-out meals for businesses, and it will last until 2022, aiding restaurants throughout the recovery. The travel industry will get a boost in the form of $15 billion for airlines to retain employees. While this injection will not be immediately felt in the hotel sector, it will hopefully prevent further scarring of the airline industry and smooth resumption of travel when demand ticks back up.
Lastly, as the vaccine rollout has brightened the light at the end of the tunnel for the pandemic, additional funding for testing, tracing and distribution may speed reduction of social distancing measures. The relief package adds $30 billion for procurement and distribution, and $22.4 billion to improve testing and tracing. These measures, along with recent FDA approval of at-home rapid tests, may spur partial returns to office sooner than expected. Retail would also stand to benefit from better testing and tracing capabilities, which will hopefully lower case counts and reduce consumer aversion to retail shopping.