House Resolution 748 of the 116th Congress, Second Session. The Coronavirus Aid, Relief, and Economic Security Act of 2020. The CARES Act. The $2.2 trillion, 808-page bipartisan pork-barrel passing as a national security omnibus. By any name, it’s the law of the land now and, unknown to most, there’s more than a little in there about the tax treatment of commercial real estate because of #StopTheSpread.

Of course, there is plenty in the CARES Act that is appropriate and proportionate to the emergency. Extensions of tax filing deadlines, broadening of unemployment benefits and aid to struggling small businesses are all immediate steps that must be taken. And some of those small businesses are real estate-adjacent. And yet CRE abides. Construction continues because, as has frequently been reported in this space and elsewhere, the housing shortage is a pre-existing national emergency.

Here in New York State, the hardest hit by COVID-19 by an order of magnitude, we are functioning under the “New York on PAUSE” stay-at-home executive order. You’re probably under similar restrictions now, or you almost certainly will be by some point next week. The exceptions here are related to “essential” services, which include first responders, pharmacy staff, grocery store employees and the pizza guy. But that lot down the street where the new condos are going up? It’s still teeming with carpenters, roofers, electricians, and pipefitters. Cement mixers, backhoes, and crawlers still swarm. That’s because this work is deemed by the local development authority to fall into the “essential” category.

“Essential construction may continue and includes roads, bridges, transit facilities, utilities, hospitals or health care facilities, affordable housing, and homeless shelters,” according to guidance from Empire State Development.

The kicker, of course, is that pretty much every large-scale multifamily project in downstate New York has some kind of set-aside for affordable housing, so construction really hasn’t slowed much around here.

So the argument could be made that these projects don’t per se need a stimulus to get through the crisis. Nevertheless, they have it. Here are some details.

Down with the sickness

“While the CARES Act provides certain measures that directly impact real estate, the vast majority of its provisions are designed to economically buttress individuals, businesses and hard-hit industries in an effort to enhance their ability to remain solvent and cover operational expenses, including rent and debt service,” according to the blog of law firm Skadden, Arps, Slate, Meagher & Flom. “The provision of monetary relief through the act in the form of emergency cash infusions, financing availability, loan forgiveness/forbearance, tax benefits, and supplemental awards is designed to help owners, landlords, operators, borrowers and tenants survive.”

That said, there are a number of such measures.

The first corrects a supposed drafting error in 2017’s Tax Cuts and Jobs Act. This provision of the CARES Act enables businesses to write off costs associated with building improvements instead of depreciating them. This sounds non-controversial enough, but New York Times readers have been told it’s a $170 billion boondoggle for the well-to-do.

More on that later, but there are other passages that affect CRE. For instance, most borrowers of federally backed mortgages on buildings designed for five or more families can seek up to 90 days of forbearance. These borrowers, though, are forbidden to evict or charge late fees or penalties to tenants during the forbearance period. Also, for 120 days from the date of the act, residential landlords cannot recover rental units or charge fees or penalties resulting from the nonpayment of rent in the event that a landlord’s mortgage is federally insured, guaranteed or otherwise assisted. That means any help from the U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac, the rural housing voucher program or the Violence Against Women Act has this string attached.

Beyond that, there is a further earmark of $3.2 billion for a flexible response to the pandemic for tenant-based rental assistance, project-based rental assistance, public housing, and other uses.

The single-family view

Residential real estate also benefits from CARES Act provisions. Foreclosures of most federally backed mortgages on single- to quadruple family homes are prohibited for the 60 days that started March 18. Also, borrowers of federally backed mortgages facing economic difficulties as a result of the coronavirus can seek up to 360 days of forbearance.

Still, there is bound to be some short-term pain in the world of city row houses and picket-fenced suburbs despite the continued strength in CRE. These lower-scale, lower-density projects are considered less essential and, besides, the market for them has pretty much dried up. It’s hard to sell a home if you can’t show it.

And yet, housebuilders and flippers sound downright philosophic about all this.

“I think development will pick up right where it left off,” Philadelphia developer Rahil Raza told WHYY-FM. “I’m not going to say ‘these things happen’ — nothing like this has ever happened — but there are always hiccups in the economy. I think we’ll get back on track.”

He told reporter Jake Blumgart that he expects all this to come out in the wash in about six months.

“I bought these properties for a low amount and so if I have to drop the rent a couple of hundred dollars, I’ll do that,” Raza said. “It’s not gonna break my bank.”

A PR mess?

It’s hard to see how the pandemic might affect real estate markets in general. This is a disruption and, with every family that is diminished by COVID-19, there will be a unique dislocation that can only be modeled in the aggregate but can only be experienced in the particular.

So if you didn’t expect the New York Times to run the headline and kicker: “Bonanza for Rich Real Estate Investors, Tucked Into Stimulus Package: A small change to tax policy could hand $170 billion in tax savings to real estate tycoons,” then you must be unfamiliar with this particular news-gathering organization.

“Senate Republicans inserted an easy-to-overlook provision on page 203 of the 880-page bill that would permit wealthy investors to use losses generated by real estate to minimize their taxes on profits from things like investments in the stock market. The estimated cost of the change over 10 years is $170 billion,” according to Times reporter Jesse Drucker. “[T]he use of [non-cash, depreciation] losses was limited by the 2017 tax-cut package. The losses could be used only to shelter the first $500,000 of a married couple’s nonbusiness income, such as capital gains from investments. Any leftover losses got rolled over to future years.

“The new stimulus bill lifts that restriction for three years — this year, and two retroactive years — a boon for couples with more than $500,000 in annual capital gains or income from sources other than their business.”

Fast Company lumps this in with other “infuriating details and corporate giveaways” in the CARES Act. Writer Marcus Barum lists relaxation of bank reserve requirements, a giveaway to for-profit colleges and an extension of federal funding for the abstinence-only approach to sex education.

He also includes sunscreen becoming an eligible expense for health savings accounts; maybe he never met anyone who ever had skin cancer. But the press has been known to get things wrong occasionally, it might shock you to learn. And provisions in this law that seem like a valentine to the Commercial-Property-Developer-in-Chief could prove to be a magnet for bad publicity.

The constraints on real estate development are related to labor, equipment, and regulation. The current crisis won’t be a big help with any of these, but it also isn’t much of a hindrance. It’s unclear how tax benefits will spur more or faster development, but the money is on the table, so why not pick it up.