FINANCIAL IMPLICATIONS CPM, CRE, CRRP, FRICS Owner, SVN - - PowerPoint PPT Presentation

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FINANCIAL IMPLICATIONS CPM, CRE, CRRP, FRICS Owner, SVN - - PowerPoint PPT Presentation

Sep 15, 2022 400 likes •764 views

Gary Ralston, CCIM, SIOR, FINANCIAL IMPLICATIONS CPM, CRE, CRRP, FRICS Owner, SVN Gary.Ralston@svn.com OF COVID-19 & Tyler Davis, CPA, MTA Asset Manager & Advisor, SVN RESOURCES AVAILABLE tyler.davis@svn.com Javier Marin, MBA-IB,

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SLIDE 1

FINANCIAL IMPLICATIONS OF COVID-19 & RESOURCES AVAILABLE

Gary Ralston, CCIM, SIOR, CPM, CRE, CRRP, FRICS

Owner, SVN Gary.Ralston@svn.com

Tyler Davis, CPA, MTA

Asset Manager & Advisor, SVN tyler.davis@svn.com

Javier Marin, MBA-IB, CEcD, CGBP

Director of Business Development, CFDC Javier@cfdc.org

Note: the following should not be construed as and should not be relied upon as legal or tax advice.

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SLIDE 2

OVERVIEW

  • Federal Relief Assistance
  • “CARES” Act
  • SBA Loan Options
  • State & Federal Disaster Relief

Assistance

  • Florida Bridge Loan
  • Florida Individual Unemployment

Assistance

  • Economic Impact
  • Real Estate Industry
  • Guidance for Landlords & Investors
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SLIDE 3

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • $2 trillion response bill
  • Passed by the Senate on March 26, House on March 27
  • Allocations:
  • $560b to individuals
  • $500b to large corporations
  • $377b to small businesses
  • $340b to State & local governments
  • $44b to education
  • $154b to public health
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SLIDE 4

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Checks to Individuals
  • $1,200 to adults, $500 per child
  • Based on 2018 tax return, or 2019 if filed already
  • IRS processing these payments
  • Income phase out based upon Adjusted Gross Income (AGI)
  • $75,000 single filer/$150,000 married filing jointly
  • Tax planning opportunity – delay or expedite filing 2019 return depending on 2018/2019 income
  • Non-taxable under IRC 139 (Disaster Relief Payment)
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SLIDE 5

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Small Business Relief – “Paycheck Protection Program”
  • Eligible businesses
  • Fewer than 500 workers in a single location.
  • Maximum employee number increased for certain industries & businesses (SBA Size standard)
  • A 501(c)(3) with fewer than 500 employees
  • Individual Sole Proprietor, Independent contractor, self-employed
  • Business must have been operational on Feb 15, 2020 and had employees (or paid

independent contractors)

  • Apply for loans through approved commercial banks beginning on April 3 for small

businesses and April 10th for independent contractors & self-employed individuals

  • SBA Loans
  • Only one PPP loan allowed per company
  • Initial rate is 0.5%, Maximum 4% interest rate
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SLIDE 6

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Small Business Relief – “Paycheck Protection Program”
  • What will be requested?
  • Must certify the funds will be used for payroll, mortgage interest, rent, or utility payments
  • Must certify business impacted by COVID-19
  • Tax Return for documentation
  • Payroll Documentation (provided by Payroll Company)
  • Form 1099 (IC), Income Statement, Schedule C from 1040 if sole proprietor
  • What is not requested:
  • Collateral
  • Personal Guarantee
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SLIDE 7

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Small Business Relief – “Paycheck Protection Program”
  • How much can be requested?
  • Companies eligible to borrow 2.5x average monthly payroll
  • Existing companies – look at 2019 payroll & average it, New Co’s – look at Jan & Feb 2020
  • Includes compensation of individual employees – cap employees at $100k in salary
  • Includes employee benefits for vacation, parental, family, medical, or sick leave.
  • Includes amounts paid for employee health care benefits including insurance premiums
  • Maximum loan is 2.5x payroll, or $10m cap
  • What is forgiven?
  • Amounts used within an 8 week window for payroll, rent, mortgage interest, and utilities can be

forgiven – you can choose the 8 week window (until June 30, 2020)

  • You will owe money when the loan is due if it is used for anything other than payroll, mortgage

interest, rent, and utilities.

  • Loan forgiveness amount is reduced if the number of employees or payroll decreases by 25% or

more

  • Loan repayment on remainder is deferred for up to one year from date of loan
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SLIDE 8

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Small Business Relief – “Paycheck Protection Program” Application

https://home.treasury.gov/sys tem/files/136/Paycheck- Protection-Program- Application-3-30-2020-v3.pdf Application Link:

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SLIDE 9

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Mortgages
  • Foreclosure & Evictions are delayed 60 days beginning March 18
  • Multi-family owners can request three, 30 day forbearance periods on mortgages with

bank in exchange for a promise of no evictions

  • Must be current on payments as of 2/1/2020
  • Unemployment
  • $600/week increase for the first four months
  • Eligibility expanded to include freelancers, independent contractors, & other non-

traditional workers

  • Also expanded to include furloughed employees & part time employees
  • Maximum duration of benefits extended to 39 weeks (from 26)
  • $6.6m unemployment claims last week
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SLIDE 10

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Tax Benefits
  • $221b directed for business tax benefits
  • Most of these provisions are temporary & taxpayers must act within a small window
  • Defer payroll taxes (Medicare & SS) for remainder of 2020
  • 50% of this amount paid on 12/31/2021 & 50% on 12/31/2022
  • Employee Retention Credit (2020 only)
  • Companies are ineligible if they are receiving a PPP loan
  • Most will find the PPP more valuable than the credit
  • Refundable tax credit
  • 2 ways to qualify:
  • Government orders forced the business to shutdown or partially shutdown OR
  • Business remained open, but gross receipts for a quarter were 50% less than the PY
  • Business gets tax credit for payroll paid during this period (of forced shutdown or quarters with 50%
  • r less revenue compared to prior year quarter) – subject to limits
  • $10k max credit per employee
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SLIDE 11

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Tax Benefits
  • Enhanced ability to carry losses back to prior years
  • 2018-2020 losses can be carried back 5 years to recoup taxes paid
  • Tax Cuts & Jobs Act of 2017 previously eliminated any carryback for most businesses
  • Losses carried forward can eliminate 100% of future income rather than the previously

allowed 80%

  • Waived 10% penalty on qualified retirement plan distribution prior to age 59 ½.
  • Max penalty free distribution of $100k
  • Certain requirements to qualify
  • Still must pay the normal tax (unless ROTH)
  • Increased retirement plan borrow amount
  • From $50k to $100k for 180 days
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SLIDE 12

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Tax Benefits
  • Non-residential property owners – can expense certain interior property improvements

(ex: tenant improvements) immediately rather than depreciating over 39 years

  • Changed asset class from 39-year property to 15 years, which makes them eligible for Section

179 bonus depreciation

  • Will often result in a large Passive Activity Loss which is subject to limitations
  • Drafting error in Tax Cuts & Jobs Act of 2017 (Tax Reform)
  • Retrospective adjustment to Jan. 1, 2018
  • File amended returns & receive back a portion of prior year taxes paid
  • Estimated $30 billion in overpaid taxes in prior years because of this drafting error
  • Ground up development not included
  • Only interior improvements to existing structures
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SLIDE 13

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Agriculture Industry:
  • Office of the Secretary of Dept. of Agriculture received $9.5 billion
  • Provide support for producers of specialty crops & those that supply local food systems
  • Commodity Credit Corporation Fund also received $14 billion
  • Market Facilitation Program (MFP) Payments - falling commodity prices
  • In Jan. 2020, Sec. of Agriculture Sonny Perdue previously warned that there wouldn’t be any

2020 MFP payments. However, that is subject to change now.

  • Hotel Industry:
  • Bill includes language that treats each hotel as a separate business
  • Qualifying for small business aid
  • Increase in unemployment benefits will help laid off or furloughed
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SLIDE 14

FLORIDA PROGRAMS

  • Florida Emergency Bridge Loan
  • Activated by Governor DeSantis on Monday, March 16th
  • Processed by the Department of Economic Opportunity
  • Managed by the Small Business Development Centers (SBDC)
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SLIDE 15

FLORIDA PROGRAMS

  • Florida Emergency Bridge Loan
  • Loan terms
  • Eligibility- demonstrated economic loss
  • Approval & closing
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SLIDE 16

FLORIDA PROGRAMS

  • Florida Emergency Bridge Loan
  • Get Started Now
  • Visit https://floridadisasterloan.org/
  • Review eligibility requirements and loan process.
  • Gather required support documentation.
  • Upload completed application and support documentation
  • Department of Economic Opportunity phone: 1-833-832-4494
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SLIDE 17

FLORIDA PROGRAMS

  • Individual Employment Assistance
  • Visit the Florida Reemployment Assistance website:

http://www.floridajobs.org/Reemployment-Assistance-Service- Center/reemployment-assistance/claimants/apply-for-benefits

  • Review eligibility requirements and application process
  • Gather required support documentation.
  • Apply online
  • Call 1-800-681-8102 for additional assistance
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SLIDE 18

FEDERAL RELIEF ASSISTANCE

  • “CARES” Act
  • Small Business Relief – “Economic Injury Disaster Loans”
  • Existing loan program – CARES Act tweaked the rules
  • Same business eligibility rules as the PPP under the CARES Act
  • Can be approved solely based on credit scores.
  • Advance of $10,000 within three days of application is available
  • $10k is forgivable & deemed a grant if used on “Qualifying Expenditures”
  • CARES act waives requirement of personal guarantees up to $200k and

waives the requirement that the company must have been in business for

  • ne year.
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SLIDE 19

FEDERAL RELIEF ASSISTANCE

  • Paycheck Protection Program vs. Economic Injury Disaster Loans

PPP vs EIDL Payroll, mortgage interest, rent, utilities Uses Payroll, debt, normal expenses 2.5x monthly payroll, $10m cap Maximum Amount $2m max Max 4% Rate 3.75% 10 years, no payments for first 6-12 months Length 30 year term max 100% if used on qualified expenses Forgiveness None

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SLIDE 20

ECONOMIC FORECAST

  • Best case
  • Rapid and effective control of virus spread
  • Medical solution … treatment/cure and vaccine
  • Strong growth rebound – V shape
  • Long term averages for earnings ratio
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SLIDE 21

S&P 500 PE Ratio

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SLIDE 22

ECONOMIC FORECAST

  • Best case
  • Rapid and effective control of virus spread
  • Medical solution … treatment/cure and vaccine
  • Strong growth rebound – V shape
  • Long term averages for earnings ratio
  • Economic demand is correlated to people and jobs
  • Population growth will return
  • Technology and productivity trends will reemerge … more jobs
  • Migration to Florida will reemerge … State economy will outperform
  • Overall economy will be different … but economy was healthy before the

crisis and we can be optimistic that this is indication of what happens after

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SLIDE 23

IMPACT ON REAL ESTATE

  • For the most part, real estate is a leveraged (more debt than equity)

asset class

  • Lower interest rates are good for real estate
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SLIDE 24
  • Historically lower interest

rates have been good for commercial real estate

  • Investor perception of rising

risk puts upward pressure on cap rates

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SLIDE 25

10 Year US Treasury Rate

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SLIDE 26

Trepp Loan Dataset Summary

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SLIDE 27

Cumulative Results COVID-19 Stress Scenario for CRE Loans 5 year Forecasts

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SLIDE 28

IMPACT ON REAL ESTATE

  • Lower interest rates are good for real estate
  • Demand (occupancy and rent) is correlated to people and jobs
  • Population growth will return
  • Technology and productivity trends will reemerge … more jobs
  • Migration to Florida will reemerge … State economy will outperform
  • Supply will be constrained … new space (construction) will be mostly

build-to-suit (pre-leased)

  • Vacancy will increase somewhat dramatically
  • Biggest opportunity is leasing and effective property management
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SLIDE 29

NAIOP Sentiment Survey

In 12 months:

  • Occupancy rates will be lower
  • About half believe rents will be lower and half believe rents will be about the

same

  • Most think that equity and debt will be available … but more constrained
  • Cap rates will be about the same
  • General conditions in the commercial real estate industry will be worse
  • Local market economic conditions will continue to be key factor
  • Markets that have been good will return to be in favor and markets in decline

will worsen

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SLIDE 30

What is the opportunity?

  • First order of business is patience and due diligence
  • Line up equity and debt sources
  • Begin to look for value add opportunities
  • Demand is based on people and income
  • Location characteristics -- people in proximity to property
  • Understand linkages (hierarchy of roads: Interstate; US Highways; State Roads; County Roads;

and streets)

  • Market analysis – demand and supply
  • Evaluate site and building characteristics
  • Financial characteristics and assumptions
  • Remember that real estate is a “long lived asset” … underwrite based on 5

to 10 year holding period

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SLIDE 31

HELPFUL LINKS

  • PwC – Employee Retention Tax Credit:
  • https://www.pwc.com/us/en/tax-services/publications/insights/assets/pwc-compensation-and-employee-benefit-provisions-under-

cares-act.pdf

  • Ernst & Young Tax NOL & tax discussion:
  • https://taxnews.ey.com/news/2020-9012-first-impressions-cares-act-has-corporate-implications-including-nol-deductions-irc-

section-163j-interest-expense-limitation-and-amt-acceleration

  • Wall Street Journal CARES Act overview:
  • https://www.wsj.com/articles/whats-in-the-2-trillion-senate-coronavirus-bill-11585185450?tesla=y&mod=article_inline
  • US Senate Committee on Small Business & Entrepreneurship

– Guide to the CARES Act:

  • https://www.sbc.senate.gov/public/_cache/files/9/7/97ac840c-28b7-4e49-b872-

d30a995d8dae/F2CF1DD78E6D6C8C8C3BF58C6D1DDB2B.small-business-owner-s-guide-to-the-cares-act-final-.pdf

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SLIDE 32

HELPFUL LINKS

  • SBA – Coronavirus Guidance:
  • https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources#section-header-0
  • CFDC – Florida Emergency Loan Guidance:
  • https://www.cfdc.org/florida-small-business-emergency-bridge-loan-program-activated/
  • CARES Act – Final Bill Text
  • https://www.congress.gov/bill/116th-congress/house-

bill/748?q=%7B%22search%22%3A%5B%22coronavirus+response%22%5D%7D&s=5&r=3

  • Dean Mead Updates
  • https://www.deanmead.com/news/
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SLIDE 33

HELPFUL LINKS

  • Florida Bankers PPP Outline:
  • https://www.floridabankers.com/docs/Links/News/PPP_Borrower_Info_FactSheet_3.31.2020.pdf
  • Payroll Protection Program Application:
  • file:///C:/Users/tdavis/Documents/PPP%20Application/Mojo/Paycheck-Protection-Program-Application-3-30-2020-v3%20(1).pdf
  • Hamic Previte & Sturwold, PA:
  • https://hpsadvisors.com/
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SLIDE 34

Questions? Send us an Email

Gary Ralston, CCIM, SIOR, CPM, CRE, CRRP, FRICS

Managing Director, Owner, SVN Gary.Ralston@svn.com

Tyler Davis, CPA, MTA

Asset Manager & Advisor, SVN tyler.davis@svn.com

Javier Marin, MBA-IB, CEcD, CGBP

Director of Business Development, CFDC Javier@cfdc.org

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SLIDE 35