On Friday, March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, And Economic Security (“CARES”) Act; the text of the Act can be accessed at: https://www.congress.gov/bill/116th-congress/senate-bill/3548/text.
The purpose of the CARES Act is to stimulate the economy in various ways to address the extreme impact of the COVID-19 outbreak on businesses and individuals.
One key feature of the CARES Act is a loan program dubbed the “Paycheck Protection Program”. This program creates a fund of approximately $300 billion for low-interest loans from the Small Business Administration (SBA) to employers, the primary purpose of which is to help such businesses pay various fundamental operating expenses during the next few months. The goal of the program is to incentivize such businesses to retain their employees during this period, thus indirectly seeking to stem unemployment, by providing for forgiveness of such loans based on the level of retention of employees by such an employer. In other words, the fewer employees that an employer lays off, the greater will be the portion of such loan that the employer will not have to repay. FAQ’s for this program can be accessed at: https://www.rubio.senate.gov/public/_cache/files/ac3081f6-14ae-4e6f-9197-172ede28badd/71AB6CB05A08E369E0D488A80B3874A5.faqs—paycheck-protection-program-faqs-for-small-businesses.pdf.
Many building owners, and virtually all co-ops and condos, should be eligible to apply for such loans, which could prove to be of invaluable assistance in offsetting rent, maintenance and common charges lost in the coming months due to business shutdowns by building commercial tenants, and economic reverses by commercial as well as residential tenants and apartment owners that impede their ability to pay their monthly obligations.
Briefly, the Act provides that “any business concern” with, generally, fewer than 500 employees will be eligible to receive such a loan. The amount that can be borrowed will be an amount equal to the average monthly payment by an employer for payroll, mortgage, rent and any other debt obligation paid during the prior twelve months, multiplied by four (to a maximum of $10 million).
The loan funds can be used for the employer’s payroll and employee benefits, mortgage expense, rent, utilities and any other pre-existing debt expense of the employer during the period ending June 30, 2020, as of now.
Most building owners and virtually all co-ops and condos would appear to be eligible for such loans.
Most buildings are owned by single-purpose entities, and all co-ops and condos are by definition single-purpose entities. Most such ownership entities, and virtually all co-ops and condos, have fewer than 500 employees. At least in New York City, most building employees are members of unions, a fact that militates against owners terminating employees easily and quickly. Thus, it would appear that most building owners, and virtually all co-ops and condos, are perfectly-situated to take advantage of this new program.
Such loans are available from various lenders on a list promulgated by the SBA. It would seem that the party best suited to prepare, submit and shepherd applications through to funding would be the managing agent of any such building owner, co-op or condo.
Needless to say, it is likely that the roll-out will be bumpy, confusing and frustrating. However, the ultimate reward would appear to make the effort worthwhile.
Please contact BBG with any questions.
By Aaron Shmulewitz