On Monday, July 27, 2020, Mitch McConnell revealed the Republican Senate's bill for the second round of coronavirus stimulus support, the Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act. This $1 trillion-dollar package would provide financial and economic support to citizens, states, businesses, and schools, including an additional stimulus check (with qualifications that would mimic those for the original CARES Act stimulus checks).
Money in the pockets of Americans, especially when millions of people have reported a loss of income, is a good thing, but how will the provisions of the bill impact the real estate market, renters, and real estate investors directly? Let's take a look at what the bill proposes and how it could impact the real estate industry.
What the bill proposes
It's important to note that the HEALS Act has been broken up into multiple bills submitted by various Republicans, making the specifics of the Act difficult to piece together. While the following is not the entire proposal, these are the parts of the bill that have been released that would impact real estate investors and the real estate industry the most.
- Additional stimulus check: The HEALS Act includes an additional stimulus check that mimics the ones provided as a part of the CARES Act. This would provide $1,200 for single filers who earn less than $75,000 per year or $2,400 for those earning $150,000 or less filing jointly.
- Reduction in unemployment benefits: Republicans want to promote people returning to work. Rather than maintain the additional $600 per week in unemployment benefits that recently expired as a part of the CARES Act, they will reduce the additional benefits to $200 per week with potential increases up to $500 per week over time.
- Liability protections for business, doctors, and schools: The bill would provide certain protections against lawsuits for business, doctors, and school unless it's a case of "gross negligence" or "willful misconduct."
- Extending the Paycheck Protection Program with modifications: The Paycheck Protection Program (PPP) introduced as a part of the CARES act provided $350 billion to small businesses in the form of forgivable loans with the intention of retaining jobs. While the effectiveness of the program has been debated, the HEALS Act would allocate $190 billion in funding for the PPP, limiting payouts to businesses with 300 employees or less who experienced a 50% reduction in revenues.
- Funding for schools: $105 billion would be allocated to schools (public and nonpublic primary schools and colleges or universities), offering special grants to those that open their doors again come fall.
- Funding for farmers: $200 billion would be allocated to farmers and ranchers affected by a loss in revenue, crop production, or demand as a result of the virus.
- Tax credit to business owners: The HEALS Act would include up to a 65% tax credit to businesses for wages paid to employees during the pandemic, with a maximum of a $10,000 credit per quarter per employee, among other tax credit incentives.
How it would impact tenants, borrowers, and investors
This bill does provide additional economic relief to millions of Americans in the form of an additional stimulus check, but for many renters and homeowners out of a job, this relief won't last long. The bill will provide temporary relief right now, but its overarching goal is to provide long-term relief by stimulating economic activity through encouraging businesses to reopen and thus retain or create jobs through incentives and tax credits. While the idea behind the bill (get people back to work and they won't need continuous government support) seems logical, it doesn't address the fact that states have jurisdiction over which business and what type of businesses can reopen and when.
Several states experienced record surges in COVID-19 cases in June and July after slowly reopening their economies, leading them to shut down the very business they reopened. If states maintain these policies over the next few months, millions of homeowners and tenants will continue to be jobless and will be receiving far less unemployment support. This will likely lead to an increased number of mortgage delinquencies and missed rents along with placing a large financial burden on banks and landlords.
The $305 billion in funding being allocated to farmland and schools will help out certain real estate investment trusts (REITs), like agricultural REITs or student housing REIT American Campus Communities (NYCE: ACC). ACC will likely suffer huge losses if universities and colleges don't reopen in the fall.
One thing this act excludes that the proposed Democratic House HEROES Act (Health and Economic Recovery Omnibus Emergency Solutions Act) provides is ongoing rent and mortgage relief as well as an eviction and foreclosure moratorium.
There are several provisions that were included in the bill that are completely unrelated to coronavirus economic relief and will surely be starting points for the negotiations that are set to take place between Democrats and Republicans on Thursday, July 30. When you compare the HEALS and HEROES acts apples to apples, there are some overlaps, but it seems they are far off in many areas, meaning there will need to be compromises made between the two parties before a final act is passed into law.