Will the American Rescue Plan Act Rescue Real Estate?
March 12, 2021
By Joseph Rubin
Today, President Biden signed into law the American Rescue Plan Act of 2021 (“ARPA”), providing almost $2 trillion of federal government relief to state and local governments, businesses, and individual Americans as the nation recovers and rebuilds from the devastating impact of the COVID-19 pandemic. Looking through the many components of this vast bill, we have attempted to filter out programs that could bolster those segments of the real estate industry hit particularly hard by the pandemic: hospitality, retail, and (in some markets) multifamily. Here is a high-level summary of provisions that could directly and indirectly benefit those property owners:
Owners of retail space with restaurant tenants should benefit from the $28.6 billion Restaurant Revitalization Fund, which provides grants of up to $10 million per entity or $5 million per location to restaurant owners to use for rent, mortgage payments, payroll, and other operational expenses. These are grants, not loans, and are excluded from the recipient’s income. Restaurant and other business owners can also continue to apply for SBA loans, as the bill provided an additional $15 billion in funding toward the Emergency Injury Disaster Loan (EIDL) program. There is also an additional $7.5 billion in funding for Paycheck Protection Program (PPP) loans. As before, the PPP loans may be forgiven if the funds are used for qualified expenses.
ARPA includes $21.5 billion in additional rental housing assistance. These funds will be allocated to the states to provide assistance to qualifying households needing support paying current and/or past-due rent. These low income households must have suffered from a loss of income related to the pandemic. Multifamily owners should benefit from these grants. The act did not extend the national eviction moratorium, which is scheduled to expire on March 31.
The plan allocates $350 billion to state and local governments to provide relief against the lost income and higher expenses that have left their budgets out of balance. Real estate owners have been concerned that jurisdictions would be forced to raise property taxes, and these funds may take the pressure off governments to do so.
Despite industry advocacy, the bill did not include a provision to reduce or eliminate cancellation of debt (“COD”) income that occurs when debt, such as a commercial mortgage, is partially or fully forgiven in a workout or property foreclosure.
ARPA provides substantial payments to many American households, which may be used to pay rent, to shop, and perhaps even travel. Single households earning less than $75,000, and up to $80,000 with reduced benefit, will receive $1,400 per person in addition to the $600 provided in the December stimulus package. Married couple households will also receive the $1,400 per person benefit if income is less than $150,000, with reduced benefits up to $160,000.
The child tax credit is being expanded from $2,000 to $3,000 for each child between ages 6 through 17, and to $3,600 for each child under the age of 6. This credit was designed to be fully refundable so it will also apply to households where no tax is paid, and the government will advance half the credit on a monthly basis beginning in July. These benefits phase out at similar income limits described above.
The rescue plan also extends the supplemental $300/week unemployment benefit through Labor Day, September 6, 2021.
These payments will provide critical funds to the countless American households impacted by the pandemic. Real estate owners should see improvement in rent collections, and an increase in retail and entertainment/dining activity. Of course, recipients may also save these funds or pay down debt, both worthwhile uses. And any dollars spent on consumption may be online rather than in-store. Nonetheless, the American Rescue Plan Act should greatly bolster the economy and job growth - both necessary foundations for the recovery of those real estate sectors that have lost significant revenue.