fbpx
Building Successful Relationships

Monthly Archives: March 2020


The CARES Act and Commercial Real Estate

The CARES Act and Commercial Real EstateSigned into law by President Trump last Friday, the CARES Act is designed to provide assistance to American workers, families, businesses, municipalities and health care systems through an over $2 trillion stimulus package. Given the enormous reach of the bill, its impact on commercial real estate, and in particular landlords and creditors, is extensive. Here are some important highlights of the Coronavirus Economic Stabilization Act of 2020 as it pertains to commercial real estate:

What support does the CARES Act provide?

The Act provides direct support to multifamily properties in the form of forbearance relief for those with federally backed loans. Section 4023 of the Act specifies that multifamily borrowers with federally backed multifamily mortgage loans experiencing financial hardship due to COVID-19 may submit a request for forbearance to the borrower’s servicer affirming that the multifamily borrower is experiencing financial hardship as a result of the COVID-19 crisis. Servicers should provide the forbearance for up to 30 days to those multifamily borrowers showing such financial hardship, which forbearance may be extended for two additional 30 day periods. By availing itself of the forbearance under Section 4023 of the Act, a multifamily borrower may not, during the forbearance term, evict or initiate eviction proceedings against a tenant solely for nonpayment of rent or other charges and may not charge any late fees, penalties or other charges to such tenant for late payment of rent. Likewise, multifamily borrowers receiving forbearance may not issue a notice to vacate to a tenant during the forbearance, nor require a tenant to vacate a dwelling unit earlier than 30 days after the date such tenant is provided with notice to vacate. Federally backed multifamily mortgage loans include those purchased or securitized by Freddie Mac and Fannie Mae, making this form of relief available to more than 27,000 properties nationally. The FDIC has also encouraged banks to consider short-term mortgage forbearance for multifamily borrowers facing reduced revenue streams as a result of the COVID-19 crisis.

More generally, the CARES Act supports the commercial real estate industry by providing income assistance to residential tenants and consumers and liquidity, in the form of loans and other relief, to commercial tenants. Making direct payments and providing enhanced unemployment benefits to citizens will help stabilize employment and strengthen residents’ ability to make rental payments during the COVID-19 crisis. Smaller commercial tenants may be able to secure funds for essentials like paying rent, mortgages, utilities and payroll through expanded SBA loan programs.

What actions are restricted by the CARES Act?

The legislation places temporary moratoriums on the ability to foreclose on federally backed mortgage loans and evict residential tenants from covered properties, which include properties that have a federally backed mortgage loan or federally backed multifamily mortgage loan, in addition to those participating in other federal housing programs. Section 4022 of the Act allows a borrower with a federally backed mortgage loan experiencing financial hardship due to the COVID-19 crisis to request forbearance for 180 days, which relief may be extended an additional 180 days. Servicers are to provide the forbearance to requesting borrowers with no documentation required beyond the borrower’s attestation to the financial hardship caused by the COVID-19 emergency, and with no fees, penalties or interest charges beyond the amounts scheduled or calculated as if all contractual payments had been made on time and in full. Servicers of federally backed mortgage loans are also barred from initiating foreclosure, moving for a foreclosure judgment or order of sale, or executing a foreclosure-related eviction or sale for at least 60 days beginning March 18, 2020. Under Section 4024, a 120 day moratorium effective from enactment of the Act was placed on actions to recover possession of a covered dwelling from a tenant for nonpayment of rent or other charges. Residential landlords may not require a tenant to vacate a covered dwelling unit earlier than 30 days after providing the tenant with such notice to vacate, nor issue a notice to vacate during the 120 day period.

What is the latest from New Jersey and Pennsylvania?

Although ever-changing, like everything involving the COVID-19 crisis, landlords and creditors must also be aware of new legislation and current executive and judicial orders issued at the State level. As of this writing, below is the latest information on eviction and foreclosure related limitations in Pennsylvania and New Jersey:

Pennsylvania – On March 16, 2020, the Pennsylvania Supreme Court declared a statewide judicial emergency effective until April 14, 2020. On March 18, 2020, the court made clear that during the judicial emergency, no eviction, ejectment or other displacement from a residence based on failure to make payment is permitted. This appears to only apply to residential/consumer matters and not commercial matters (though arguably a personal guaranty of a commercial mortgage may fall into this category). Pennsylvania state courts are currently closed to the public for non-essential functions through at least April 3, 2020. All time calculations and deadlines relevant to court cases or other business are suspended through April 3, 2020.

New Jersey – On March 19, 2020, New Jersey Governor Phil Murphy signed Executive Order No. 106, which imposes a moratorium on removing individuals from their homes via eviction or foreclosure proceedings. The Governor has asked that financial institutions holding residential or commercial mortgages, equity loans, lines of credit or business loans implement a process to work with the borrowers to avoid foreclosure or default arising out of the financial hardships caused by the COVID-19 pandemic, or any government response thereto. On March 28, 2020, Governor Murphy announced a mortgage payment relief initiative for New Jersey homeowners approved by Citigroup, JP Morgan Chase, U.S. Bank, Wells Fargo, Bank of America and over 40 other federal and state-chartered banks, credit unions and servicers offering (i) mortgage payment forbearance of up to 90 days to borrowers economically impacted by COVID-19, (ii) a moratorium on foreclosure sales or evictions of at least 60 days, (iii) relief from mortgage-related late fees and other charges for at least 90 days for borrowers requesting COVID-19 related assistance and (iv) restricting financial institutions from negative credit reporting for borrowers requesting COVID-19 related relief. He has also instructed residential landlords in the State to work with renters so they can remain in their homes, and warned that those who seek to evict tenants during this time will face stern consequences for violating the eviction moratorium.

What are the implications for residential and commercial landlords?

Given the eviction moratoriums presently in place and the importance placed by the CARES Act on allowing owners and renters to remain in their homes, multifamily owners who experience significant revenue declines may need to make use of the forbearance options or negotiate loan modifications or extensions with creditors. Commercial landlords will likely need to negotiate with both their tenants who are facing significant economic stress in keeping up with rent obligations and their lenders. In the current COVID-19 crisis, being proactive and initiating conversations is definitely preferred over the “wait and see” approach.Borrowers should review their loan covenants now, particularly for any material adverse change, force majeure and similar clauses; test any cash flow or financial covenants; and review any limitations on their ability to modify, cancel or amend leases, property management agreements or other key contracts. Commercial leases must be reviewed to confirm whether the COVID-19 crisis qualifies as a force majeure event or triggers common law doctrines of impossibility, impracticability and/or frustration of purpose which may be applicable depending on the jurisdiction. Co-tenancy, continuous operations, access, exclusive and other use restrictions may also be impacted as a result of State or local restrictions and orders being in effect, for example allowing dine-in restaurant tenants to convert to take-out only service.

Landlords should also take the following actions to strengthen their tenant and lender relationships and in anticipation of heightened lender diligence:

  • Consider imposing new or additional health, safety and maintenance regulations and performing increased cleaning activities at the subject property, and develop an employee or critical staff contingency plan that can be shared with lenders
  • Document all communications with tenants regarding the COVID-19 emergency and any rental payment obligations, but make clear no modifications, forbearance or waivers of any lease terms are approved until documented in a formal amendment or agreement
    Eliminate unnecessary expenses and consider creative solutions to reduce marginal costs
  • Develop a cash flow forecast that projects anticipated liquidity for 30, 60, 90 days based on stated assumptions and update the cash flow forecast with data as information becomes available
    Review all business interruption, rent loss and similar insurance policies to determine whether insurance benefits are available
  • In addition to the above steps, landlords and borrowers would be well served to educate themselves about the relief programs available to their tenants. Encouraging residential tenants to secure direct cash payments under the CARES Act and commercial tenants to consider these new loan programs providing funding for rent payments, should increase the probability that tenants will satisfy their rental obligations.

If you have any questions or to further discuss the impact of the CARES Act on landlords and creditors, please contact Lauren Beetle at 856.355.2913 or beetle@hylandlevin.com or Julie Murphy at 856.355.2992 or murphy@hylandlevin.com.

Share

(COVID-19 Update) CARES ACT

COVID-19 3-27-2020 UPDATE

The Senate and House have passed the CARES Act which is a stimulus package for the nation and includes several important opportunities for small business to receive assistance. The law was signed by the President last week.

In this legislation, there are several relief programs for businesses. In particular, the Paycheck Protection Program provides small businesses with relief with potentially forgivable loans in an amount up to $10 million to support payments for payroll costs as well as certain operation costs and expenses. Here are some brief highlights of the pending Paycheck Protection Program:

Who Is Eligible?

Small businesses, nonprofit organizations and veterans’ organizations. The organization must have fewer than 500 employees or if applicable, fewer than the size standard established by the SBA for the industry in which the business operates. Please see: Link HERE. The term “employee” includes individuals employed on a full-time, part time, or other basis.

What Time Period Is The Relief For?

The “covered period” is 2/15/2020 to 6/30/2020 under the Act. What are the Loans?

Potentially forgivable loans in an amount up to $10 million from qualifying institutions to the eligible businesses identified above. The amount of the loan is a function of the business’ average total monthly payments for payroll costs incurred during the 1-year period before the date on which the loan is made multiplied by 2.5 and the outstanding amount of a loan under subsection (b)(2) of 15 U.S.C. 636 (i.e. SBA Disaster Loans) that was made during the period beginning on 1/31/20 and ending on the date on which loans are made available to be refinanced under the covered loan. A different methodology is used for businesses that were not in operation during the period beginning on 2/15/19 and ending 6/30/19.

What Can The Loan Be Used For?

The proceeds of the loan may be used for (1) payroll costs; (2) costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums; (3) employee salaries, commissions or similar compensations; (4) mortgage interest; (5) rent; (6) utilities; and (7) interest on any other debt obligations that were incurred before February 15, 2020.

How Can I Apply For The Loan?

The loans will be administered through local SBA lenders and “additional lenders determined by the [SBA] and Secretary of the Treasury to have the necessary qualifications to process, close, disburse and service loans made with the guarantee of the [SBA].” The Legislation provides delegated authority to lenders to make borrower eligibility determinations.

An eligible recipient must make a good faith certification (i) that the uncertainty of the current economic conditions makes necessary the loan request to support operations; (ii) acknowledging that funds will be used to retain workers and maintain payroll, to make mortgage payments, lease payments and utility payments; (iii) that the recipient does not have an application pending for a loan for the same purpose and duplicative of amounts applied for or received under covered loan; and (iv) during the period beginning on 2/15/20 and ending on 12/31/20, that the recipient has not received a loan for the same purpose and duplicative of amounts applied for or received under a covered loan.

How Is The Loan Forgiven?

A recipient shall be eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of the following costs incurred and payments made during the 8-week period beginning on the date of origination of the loan: (a) payroll costs; (b) payments of interest on any covered mortgage obligation; (c) payments on any covered rent obligation; and (d) covered utility payments. The amount of forgiveness may not exceed the principal amount of the loan. Furthermore, forgiveness is reduced proportionally by any reduction in employees and/or a reduction in wages more than 25%. To obtain forgiveness, a recipient must submit an application directly to the lender verifying compliance.

What Can Businesses Do Now?

Consequently, businesses should contact their local bank as soon as possible and verify they are an SBA lender and what the bank’s process will be for issuing these loans. Since the authority is delegated to the bank, different banks may have different processes. You should contact your regular bank where you have an existing relationship as this may move the process faster.

In addition, businesses should gather their payroll and operation expenses from 2/15/2019 through 6/30/2019 to justify their request for relief.

Finally, to the extent it is sustainable, businesses should avoid laying off employees and instead take steps to maintain employees on their payroll as this program is passed and implemented.

Don’t Forget About New Jersey

New Jersey passed legislation today that will help many New Jersey businesses through grants and loans administered by the NJEDA. See the full release here: https://www.njeda.com/Press-Room/News-Articles/Press-Releases/NJEDA-Announces-New-Initiatives-to-Support-Busines

Federal Paid Sick Leave and Emergency FMLA Update

The US Department of Labor announced the effective date of the Federal Paid Sick Leave and Emergency FMLA will be April 1, 2020. Here is a link to the required posting from the DOL HERE>>

There are many other nuances to CARES Act and the Paycheck Protection Program and this is only a brief overview. Please reach out to discuss this legislation further so you will be prepared to move forward in seeking relief under the Act.

There are many other nuances to CARES Act and the Paycheck Protection Program and this is only a brief overview. Please reach out to discuss this legislation further so you will be prepared to move forward in seeking relief under the Act.

If you have any questions please contact Megan Knowlton Balne at 856.355.2936 or balne@hylandlevin.com

 

Share

(COVID-19 Update) Implications for Landlord-Tenant Relationships

COVID-19 Implications for Landlords and TenantsIn light of COVID-19 and the evolving climate resulting therefrom, Commercial and Residential Landlords are being presented with difficult decisions necessitating quick response. Everyone agrees health and safety is the priority; however, both landlords and tenants are asking what their rights and obligations are as a result of this pandemic. We’ve heard the term force majeure used over the past week as it relates to enforcement of contracts, leaving both landlords and tenants wondering if COVID-19 is a force majeure event that reduces or even eliminates their respective rights and obligations under the lease.

Download Printable Article (PDF) >>>

Force majeure clauses are found primarily in non-residential leases and only occasionally in residential leases. Generally speaking, force majeure clauses excuse a party from certain contractual obligations when an unforeseen circumstance or event outside of their control makes performance impossible. Force majeure clauses attempt to provide the parties with certainty if/when an unforeseeable unknown event occurs. Many force majeure clauses specifically define the triggering events while others vaguely refer to unforeseeable events or are silent.

At present, there is uncertainty as to whether COVID-19 is an event if force majeure; however, actions taken by the state and local officials to shut down businesses and encourage or mandate shelter-at-home protocols arguably trigger the effect of typical force majeure clauses, especially if health-related disasters, like disease or pandemic, are called out specifically.

As a first step in determining if COVID-19 is a triggering event, the landlord and tenant must review the express terms of the lease to determine if a force majeure clause appears. Next, the parties must determine the scope and language of the clause — does it specifically include or exclude health-related events or is it silent on that issue? Of course, if there is no such clause at all, a different analysis must be made.

Assume a clause exists and would be triggered by the current pandemic. In its simplest form, the express terms of a force majeure clauses in residential and commercial leases will dictate the parties’ rights and obligations. Further depending upon the circumstances and the level of specificity of the meaning or definition of “force majeure” as used in an express clause within a lease, principles of equity may be invoked. Simply because a force majeure clause appears in the lease which seems applicable does not necessarily mean either party is excused from its lease obligations.

Courts may choose to exercise their equitable powers in determining whether this pandemic implicates a force majeure clause containing or impliedly containing an “act of God” clause which, once invoked, creates an impossibility of performance, a determination that performance is unreasonable, that the contract is voidable

The foregoing information was furnished to us by sources which we deem to be reliable, but no warranty or representation is made as to the accuracy thereof. Subject to correction of errors, due to frustration of purpose, etc. Courts focus on the foreseeability of the event and the connection between the event and the non-performance. An otherwise-defaulting party will have difficulty invoking the force majeure to excuse its contractual obligations. In short, with respect to COVID-19, an interpretation of a force majeure clause must be made to determine whether the party seeking to be excused is simply attempting to use the force majeure to get out of a contract that party no longer wishes to perform.

For leases without force majeure clauses, common law doctrines of impossibility, impracticability and/or frustration of purpose may still apply to excuse contractual obligations. Simple economic struggle will not be a triggering event; however, economic struggle resulting from unforeseeable events may be sufficient.

On March 18, 2020, the Pennsylvania Supreme Court ordered a temporary moratorium on residential nonpayment evictions in the Commonwealth until April 3, 2020. The Order specifies this moratorium was enacted because of the economic impact COVID-19 is having on residents. At present, neither the Court’s Order nor the Landlord-Tenant Act excuses tenants from their rental obligations; however, it is more than likely that this Order will be updated and revised as the pandemic spreads.

Although the Order does not provide for any current rental abatement, if a Landlord is unable to provide tenants with the full intended benefit of the Lease, the monthly Rent should be appropriately adjusted. Congress is also considering relief for the housing providers in addition to renter assistance. Housing providers are experiencing the same health, safety and economic concerns as renters, such as an inability to pay their mortgage, employee payroll and benefits, insurance premiums and tax obligations in the current environment. Congress has been asked to provide much needed relief to both landlords and tenants in the midst of this pandemic; therefore, subsequent updates on this topic are likely.

Force Majeure clauses are typically only enforced as expressly agreed by the parties, but the pandemic may continue to affect this general statement. Since the PA Supreme Court is already entering equitable orders related to residential nonpayment of rent evictions at the beginnings of the pandemic, it is safe to say the Order will be updated and further extended as the pandemic evolves, possibly even affirmatively ordering a rent holiday, partial or full abatement or deferrals.

Many Pennsylvania businesses have been ordered to cease operations as they are not classified as life sustaining; therefore, commercial landlords and tenants are faced with additional concerns. The current list of business deemed to be life-sustaining is listed here.

Commercial leases are controlled by contract law in Pennsylvania; consequently, the express terms of the lease will provide the primary source of guidance. While landlords should retain an open dialogue with tenants, they must also be careful to not promise accommodations they are not able or willing to provide.

We expect landlords to be empathetic during this pandemic, but we do not believe landlords have a unilateral obligation to “foot the bill” for these problems they did not create. Further, if landlords and tenants have any verbal communications regarding rent accommodations, landlords and their agents must be extremely careful to specify that the parties will not be bound by the negotiations and will only be bound when a subsequent agreement is reduced to written form and signed by all parties. Force majeure clauses may be applicable to COVID-19 because of the governmental and court orders forcing closure beyond the control of the landlord or tenant; therefore, landlords must carefully comply with any notice or other procedural requirements set forth in the applicable lease.

Tenants will likely attempt to use a force majeure clause, assuming one to exist in the lease, or seek equitable relief, to excuse their rental obligations; however, most commercial leases preclude the use of force majeure clauses to abate rent and/or terminate the lease even if the tenant is unable to access the leased premises and operate. The terms of each lease and the local jurisdiction’s administrative Orders will affect this. Moreover, if the tenant does not actually vacate the leased premises, Courts will also have to take into account whether it is equitable on either a short-term or long-term basis for the landlord to continue to provide shelter and to incur costs without any compensation, notwithstanding the current prohibition on residential evictions for non-payment.

Mandated closures, like those resulting from Governor Wolf’s recent Order, may require landlords to shut their facilities, which prevents tenants from accessing their premises, making performance impossible whether or not there is a force majeure clause. In cases where the lease does not expressly include a force majeure clause, the concept of impossibility of performance may further provide some protection to landlords as well as tenants.

Force majeure clauses in most commercial leases preclude commercial tenants from withholding rent following an “act of god.” It is inevitable that a commercial tenant will seek rental abatement/deferrals/rent holiday if it is unable to occupy and operate. While the applicable lease may not require the landlord to engage in negotiations, it may be in the commercial landlord’s best interest to get creative and provide short-term relief to struggling tenants rather than suffer the alternative of losing tenants for the long-term and incurring substantial litigation expenses attempting to enforce the lease as written to compel occupancy and/or collect rent. Creative options for negotiations include but are not limited to, temporary rent reductions, payment of percentage rent only (if a retail store remains open; note, however, that the retail stores which do remain open are often grocery stores, which one would expect will be doing substantial business and should not have a problem paying rent), CAM-only monthly payments, application of security deposit to unpaid rent, rent deferrals, temporary rent forgiveness, lengthening the lease term by a time equivalent to the rent deferral period or requiring personal guarantees of future rent payment.

Because nearly everything about COVID-19 remains uncertain and consistently evolving, neither landlords nor tenant should make an assumption that COVID-19 will be declared an event of force majeure. It is of the utmost importance for landlords and tenant to comply with any and all force majeure provisions in the lease, including but not limited to the notice provisions, which may be critical to protecting their respective rights once this pandemic ends. Understanding the rights and obligations of your lease is key to long-term success.

Further, all commercial landlords need to consult their insurance advisors and review the specific terms of their policies, including but not limited to business interruption insurance and rent loss insurance as implicated by this pandemic. Landlords should also recommend that each tenant consult with its insurers regarding the same. Certain states are considering passing legislation expressly prohibiting insurers from denying claims relating to the pandemic, but that hasn’t occurred yet.

We urge all landlords, both nonresidential and residential, to assure that there is a pandemic plan and potentially engage counsel to review all leases for the following purposes: creating an addendum applicable to all tenants in the event of default; review of all force majeure clauses and updating them to include diseases, epidemics, and/or quarantines; review any other applicable contracts with tenants, residents, and suppliers to ensure they understand their rights in the instance of a force majeure.

Many landlords are current experiencing vacant retail centers, malls and buildings. One may think your job gets easier because there are few (or no) tenants in your building, but nothing could be further from the truth. In fact, even if your building is completely vacant for now, there is still plenty of work that needs to be done.

Please make sure that your team considers the following:

• Make sure your HVAC system is running properly.
• It’s ok to reduce regular thermostat settings (perhaps 55 degrees for heating and 80 degrees for cooling), but don’t turn off completely – just don’t turn them off completely!
• Make sure your outside air and exhaust fans are running to keep the air circulating.
• Make sure someone if putting water in the “p-traps” – particularly in sinks and floor drains – to keep sewer gases from backing up into the space.
• Make sure someone from your team is walking every inch of the building every workday.
• He/she should be looking for potential issues – like leaks, unsecured doors, equipment left running, etc.
• Make sure exterior doors and, where operable, exterior windows are locked.
• Work with your tenants to shut off equipment that is not in use. Remember that equipment (like a copier) is still drawing power even when it is in the power-saving mode.
• Water that is sitting still in the plumbing system will develop biofilms – which can cause disease (including Legionella, pseudomonas, and mycobacterium).
• Make sure someone is running the water through the system every day.
• Consider working with an industrial hygienist to test the potable water before letting tenants back into the building. The very last thing you want – after going through COVID19 – is to have an outbreak of Legionella when the tenants return!
• Consider posting a sign with your contact information on exterior doors in case someone needs access to the building.
• If the building is truly vacant, consider posting security guards on-site to deter vandalism and theft. Or, consider installing remote access cameras so you can keep an eye on common areas and the exterior.
• Make sure the roof access is secured – to keep people from accessing the roof and from accessing the building from the roof.
• Consider closing the miniblinds – or at least putting them down and angling them to minimize solar gain (which will reduce energy consumption).
• Review your insurance policy and notify your insurance provider. Even if the closure is only temporary, there might be insurance requirements to consider.
• Make sure building systems (pumps, motors, elevators, etc.) are exercised/run on a schedule. When these pieces of equipment sit idle, they can degrade quickly.

We suggest that you and your teams, colleagues and tenants sign up to receive up-to-the-minute text alerts from the city communications system by texting the word COVIDPHL to 888-777.

Finally, the CDC (Center for Disease Control & Prevention) has provided advice and guidelines for Landlords in the pandemic, specifically that Landlords keep Tenants informed on best practices.

If you have any questions, please contact Kierstin Lange at kmlange@zarwin.com from Zarwin Baum Devito Kaplan Schaer & Toddy PC.

Share

(COVID-19 Update) Congress Agrees to $2 Trillion Coronavirus Relief Package

$2 Trillion Coronavirus Relief PackageOn Wednesday, March 25, 2020—after days of debate—Congress agreed to a $2 trillion economic relief package designed to provide financial assistance to Americans and their families, and billions of dollars in loans for businesses. Voting is expected midday. The package is the largest fiscal stimulus in modern U.S. history and is the government’s most recent response to coronavirus disease 2019 (COVID-19).

What is included in the stimulus package?

While the final bill has yet to be released, there have been some publicly debated points. The economic rescue package includes a plan to provide two waves of direct financial assistance to Americans, a plan to stabilize the airline industry, a plan to provide small businesses with funds and a plan to issue loan guarantees to other hard-hit sectors in the economy. The package also includes provisions to extend unemployment insurance, increase funding for Medicaid and add additional assistance for small businesses throughout the country.

“This is not a moment of celebration, but one of necessity.”
Sen. Chuck Schumer

Direct Financial Assistance to Americans

The stimulus package would provide two waves of direct payments to all Americans, coming weeks apart. American adults making up to $75,000 would receive $1,200 each and $500 per child. Married couples earning up to $150,000 would receive $2,400. Adults making more than $75,000 but less than $99,000 would receive less, and adults making more than $99,000 would not receive any government financial assistance.

Stabilizing the Economy

The economic relief package proposal includes the following funds to stabilize various sectors of the economy:

  • Airline industry: $50 billion
  • Small businesses lending program: $350 billion
  • Hospitals: $130 billion
  • State and local governments: $150 billion

What’s next?

The economic relief package has been agreed to by Congress, but not yet passed. We will continue to monitor the situation for developments and provide updates.

– by Hardenberg Insurance Group

 

Share

Despite Bleak Near-Term Outlook, Philadelphia Economy Should Survive Coronavirus

The coronavirus spread has reintroduced factors absent from in the national and Philadelphia commercial real estate markets economy for almost a decade: widespread fear and uncertainty.

As we are early in the onset, and short on government data points collected after the virus’ spread, any market analyst in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space –  worth his or her salt will admit there will be a deluge of question marks hanging over the economic outlook during the next month or two.

However, it’s still constructive to take stock of what we do know, in order to build up as clear a picture of the road ahead as possible for U.S. and Philadelphia commercial real estate listings.

This CoStar Realty Information Inc. report involving U.S. and Philadelphia commercial properties is being made available through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.

First off, a painful near-term decline in Philly’s economic figures in relation to national and Philadelphia commercial real estate properties is all but certain for this spring. To curb the virus’ spread and prevent hospitals from being overwhelmed with patients, Pennsylvania and New Jersey governors both ordered all nonessential businesses to close on March 16.

How long are these monumental measures likely to stay in place? China’s aggressive lockdown measures lasted about two months. The CDC recently recommended cancelling or postponing any gatherings of 50 scheduled through mid-May. Johns Hopkins University School of Medicine’s infectious disease expert Morgan Katz expects meaningful improvements by early May.

Meanwhile, Treasury Secretary Steven Mnuchin is at the center of the White House’s economic response to this crisis and says Republican senators’ proposed Coronavirus Relief Bill, now under debate in the Congress, aims to cushion businesses for 10-12 weeks of serious disruption. That would take us through early- to mid-June.

Regardless of how long these shutdowns last, the leisure/hospitality sector and retail trade sectors in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space – will likely be some of the worst-affected major industries. They represent 10 percent and 8 percent of Philadelphia total employment, respectively.

Hit by department store closures and the shift to automated or online checkout, Philadelphia’s retail employment already was on the decline before the onset of the virus. Considering how many national retailers’ balance sheets had already been eroding prior to the onset of this crisis, the road ahead looks like a painful one for the retail markets related to national and Philadelphia commercial real estate listings.

Leisure and hospitality employment, supported mostly by restaurants, bars, and hotels, had been one of the metropolitan area’s fastest-growing employment sectors. Center City’s blossoming nightlife has been a key ingredient to Philadelphia economic revival over the past 15 to 20 years. The fact that the industry is now at such high risk is probably the biggest existential threat posed by the coronavirus to Philadelphia’s ongoing revival.

But overall, the coronavirus and its accompanying economic shock do not pose major threats to the fundamental drivers of Philadelphia’s economic renaissance over the past 15 to 20 years.

Philadelphia’s industry mix positions it better than most major U.S. cities to weather the negative economic impact of the coronavirus. Very few major U.S. markets have higher concentrations of the sector including healthcare, professional and business services which will likely remain most resilient in the months ahead.

Meanwhile, Philadelphia has relatively lower concentrations of the sectors now most at risk such as leisure and hospitality, retail and oil and gas extraction.

The city’s status as a powerhouse of healthcare innovation only gains renewed importance as a result of the current tragedy and will be a key economic benefit as the number of U.S. residents aged 70 and older grows by 40 percent over the course of this new decade.

Meanwhile, the cost of living differential between Philadelphia and its nearby competitors, New York, Boston and Washington, D.C., remains massive. Philadelphia will continue to attract large net inflows of college-educated young adults moving from these places in search of more spacious housing and higher savings/disposable income.

In other words, for firms able to remain on offense during what will undoubtedly be challenging months ahead, Philadelphia remains an attractive destination for real estate investment capital seeking stable long-term growth, especially when stacked against other major metropolitan areas in the U.S. uncertainty. – By Adrian Ponsen, CoStar Analytics.

For more information about Philly office space, Philly retail space, and Philly industrial space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly office space, Philly retail space and Philly industrial space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.

Wolf Commercial Real Estate, a Philadelphia commercial real estate broker with expertise in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philly office space, Philly retail space or Philly industrial space with the Philadelphia commercial properties that best meets their needs.

As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly office space, Philly retail space or Philly industrial space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

Share

SBA Disaster Loan Program

The Small Business Administration (SBA) is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.

•       Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available to small businesses and private, non-profit organizations in designated areas of a state or territory to help alleviate economic injury caused by the Coronavirus (COVID-19).
•       SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
•       Once a declaration is made for designated areas within a state, the information on the application process for Economic Injury Disaster Loan assistance will be made available to all affected communities.
•       SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
•       These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.
•       SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
•       SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible.

For additional information, please visit: https://www.sba.gov/page/guidance-businesses-employers-plan-respond-coronavirus-disease-2019-covid-19, contact the SBA disaster assistance customer service center, call 1-800-659-2955 (TTY: 1-800-877-8339)
or e-mail disastercustomerservice@sba.gov.

Once you go on the website you will click on economic disaster program and that is where you will apply.

For more information about The SBA Disaster Loan Program or about other commercial real estate questions, please contact WCRE, the premier Pennsylvania and New Jersey commercial real estate brokerage firm.

About Us

Wolf Commercial Real Estate is a Philadelphia commercial real estate broker that provides a full range of Philadelphia commercial real estate services, marketing commercial offices, medical properties, investment properties, industrial properties, land parcels and retail buildings for buyers, tenants, investors and sellers in the Greater Philadelphia area and beyond. Please visit our websites for information about our Philadelphia commercial real estate services for office space, retail space, medical space, investments, industrial space or land for sale or lease, or for information about other commercial real estate listings and commercial real estate services from Wolf Commercial Real Estate, the leading Philly commercial real estate broker.

Share

Property Management with Safety in Mind

Let’s look at safety as it relates to property management. As a property manager, you have an important responsibility. Building tenants and owners all rely on you to keep the property safe, orderly and functioning. However, there are also many hazards relating to your property management duties, including dealing with unruly people, performing a wide variety of repairs and tasks and facing countless unknown risks on each property.

Download Printable Article (PDF) >>>

Your safety is just as important as the tenants occupying the premises, so keep the following precautions in mind.

• Always watch out for your personal safety when dealing with the public. Sometimes people can become violent, angry or act unpredictably for no reason or over a seemingly minor issue. You may experience stress with someone else over lease agreements, parking zones or when dealing with complaints and disputes.

• When collecting rent or carrying large amounts of cash, always keep your eyes out for others. To be less vulnerable, make frequent trips to the bank during regular business hours. It is also wise to let someone else (spouse, significant other, close friend, etc.) know your daily routine in case you cannot be reached. This could indicate to them that you are in danger and need assistance.

• Conduct frequent safety inspections to identify potential hazards, such as uneven pavement, puddles of oil or water in walkways, faulty door locks, etc. Fix these problems immediately or hire someone to do so.

• Limit access to the property by installing locks on all entrances. Also install adequate lighting to deter intruders, especially in more desolate areas of the building. It is also wise to manicure the landscaping often so that there are clear views around the property.

• Communicate hazards with your tenants by placing signs on defective equipment or by restricting them from areas that are being repaired.

• Do not try to perform services that you are not properly trained on, such as HVAC work, plumbing repair, etc. If you attempt to repair or replace something without expertise, you may unnecessarily hurt yourself and/or may damage the property.

• Always use caution when working on electrical equipment, as these items can pose shock hazards.

• Be mindful of crush dangers when working near fans, elevators and trash compactors.

For more information about vacant property insurance and other strategies to help protect your assets and mitigate loss, contact us today at (856) 489-9100.

Brian Blaston,Partner
Hardenbergh Insurance Group
phone: 856.489.9100 x 139
fax: 856.673.5955
email: bblaston@hig.net
www.hig.net

Share

WCRE COVID-19 (Coronavirus) Update & Announcement

Yesterday morning, WCRE decided to implement a “Social Distancing” policy for the next 2 weeks to help protect the public safety and our local communities.

Due to this decision, our WCRE Philadelphia and Marlton Offices will be closed, but we are operating with all of the virtual resources to continue servicing our commercial real estate clients.

We have unified as a team to help “Flatten The Curve”!!! 

The goal is to get everyone in this great country back to a normal working routine, protect those that are vulnerable and get our children back to school.

Our team at WCRE is committed to helping this healthcare crisis end quickly.  We are focused on those that are most vulnerable. The best way we can do this is by following the CDC guidelines.

Jason Wolf

Managing Principal, WCRE

Share

U.S. Economy Records Another Month of Job Growth

For the second month in a row, U.S. firms active in the national and Philadelphia commercial real estate markets blasted past hiring expectations, adding 273,000 net new jobs in February according to last week’s national employment report released by the Commerce Department.

The unexpectedly strong report, culled from a variety of corporations in the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space –  was further bolstered by revisions to December and January payroll data that added an astounding 85,000 jobs in those months combined, bringing the three-month average job gain to 243,000 per month, a rate not seen since September 2016. Meanwhile, the unemployment rate ticked back down to its 50-year low of 3.5%.

This CoStar Realty Information Inc. report involving U.S. and Philadelphia commercial properties is being made available through Philadelphia commercial real estate broker Wolf Commercial Real Estate, a Philadelphia commercial real estate brokerage firm.

The survey of employers related to U.S. and Philadelphia commercial real estate listings used to compile this data was administered in the second week of February before it became apparent that the coronavirus outbreak in China had spread throughout much of the globe, including the U.S. A potential preventative vaccine is at least a year or more away, according to health officials, and therapeutic treatment remains uncertain and probably won’t be available until late spring at the earliest.

To avoid widespread transmission, factories in China and other Asian nations had halted operations and workers were isolated or quarantined. Several nations have closed their borders to visitors from impacted areas, and many national and international companies involved with national and Philadelphia commercial real estate properties now are restricting business travel.

This has led to interrupted supply chains for manufacturers serving the U.S. commercial real estate market – including Philly office space, Philly retail space and Philly industrial space and a drop-off in demand for transportation services as well as travel and tourism-related services. In the U.S., as people avoid large public gatherings and events, leisure and hospitality, live entertainment and retail sectors are likely to be impacted.

While the economic impact of the virus remains unknown, the February jobs report offers insight into the underlying strength of the labor market before impacts from the virus begin to be reflected in the economic data related to national and Philadelphia commercial real estate listings. This may suggest the economy’s resilience amid continued uncertainty. – By Christine Cooper, Managing Director and Senior Economist for CoStar Market Analytics, Los Angeles.

For more information about Philly office space, Philly retail space, and Philly industrial space or other Philadelphia commercial properties, please call 215-799-6900 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading Philadelphia commercial real estate broker that specializes in Philly office space, Philly retail space and Philly industrial space.

Wolf Commercial Real Estate, a full-service CORFAC International brokerage and advisory firm, is a premier Philadelphia commercial real estate brokerage firm that provides a full range of Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other Philadelphia commercial properties for buyers, tenants, investors and sellers.

Wolf Commercial Real Estate, a Philadelphia commercial real estate broker with expertise in Philadelphia commercial real estate listings, provides unparalleled expertise in matching companies and individuals seeking new Philly office space, Philly retail space or Philly industrial space with the Philadelphia commercial properties that best meets their needs.

As experts in Philadelphia commercial real estate listings and services, the team at our Philadelphia commercial real estate brokerage firm provides ongoing detailed information about Philadelphia commercial properties to our clients and prospects to help them achieve their real estate goals.  If you are looking for Philly office space, Philly retail space or Philly industrial space for sale or lease, Wolf Commercial Real Estate is the Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.

Please visit our websites for a full listing of South Jersey and Philadelphia commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.

Share

Cost Segregation Can Increase Cash Flow for Commercial Properties

Cost Segregation Can Increase Cash Flow for Commercial Properties

Let’s look at how cost segregation can increase cash flow for commercial properties. Have you recently built, purchased, expanded or renovated a commercial property? If so, there may be significant untapped tax savings in the property or facilities. A cost segregation study can unlock those savings through greater tax deductions, accelerated depreciation and increased cash flow. Here’s how it works: Portions of a new or existing building are reclassified as “personal property” or “land improvement.” This cost classification can be depreciated over a shorter five, seven or 15 year period as opposed to the standard 39-year depreciable life of a commercial building.

Download Printable Article (PDF) >>>

What if you built, renovated, expanded or purchased a building in prior years? Cost segregation is still an option. The IRS allows taxpayers to change prior accounting methods to take advantage of these previously understated depreciation deductions. This can be done without amending tax returns and can generate a relatively large tax deduction in the year of change.

TAX REFORM MAKES COST SEGREGATION MORE VALUABLE THAN EVER

The tax benefits of cost segregation are even greater thanks to tax reform’s enhancement of bonus depreciation.
In general, bonus depreciation is applicable to depreciable business assets with a recovery period of 20 years
or less. Tax reform doubled bonus depreciation from 50 to 100 percent for qualifying property with acquisition
and in-service dates between September 27, 2017 and December 31, 2022. This means that 100 percent of
qualifying costs would be fully depreciated and recognized in year one and only the remaining building cost
would depreciate going forward over 39 years. After 2022, the bonus rate decreases by 20 percent annually,
so the time to act is now.

REAL RESULTS FOR REAL PROPERTIES

RKL performs over 80 studies every year for companies in a variety of industries, including rental real estate, office buildings, hotels/motels, golf courses, auto dealerships, manufacturing facilities, warehouses and more.

Here are two recent examples to demonstrate cost segregation can increase cash flow.

• Construction of a new hotel facility in 2018: Of the total project cost of $13.5 million, RKL identified $5 million as personal property and land improvements. This cost segregation combined with enhanced 100 percent bonus depreciation a present value of the tax savings of $958,000 (using a 37 percent federal tax rate and six percent discount rate), with projected additional depreciation deductions of $4 million for a tax savings of $1.5 million.

• Turn-key construction of a new medical office in 2017: Of the total project cost of $2.4 million, RKL identified $1 million as personal property and land improvements. This cost segregation combined with enhanced 50 percent bonus depreciation produced a present tax savings of $200,400 (using a 42.67 blended tax rate and six percent discount rate), with projected additional depreciation deductions of $695,000 over the next seven years. This will produce tax savings of $296,500 over that seven-year period with $233,200 in the first year alone.

• 2018 look-back study for a previously purchased office/distribution warehouse facility: RKL identified $326,200 of the original $1.375 million building cost as personal property and land improvements. This resulted in a one-time additional depreciation deduction in the current year’s tax return of $170,700. To obtain an analysis of potential cost segregation tax savings, contact RKL today.

FOR MORE INFORMATION CONTACT:

Share

Optional Standard Mileage Rate for Business Use of an Automobile

The IRS has announced that the optional standard mileage rate for business use of an automobile (including vans, pickup trucks and panel trucks) effective January 1, 2020 will be a bit different from 2019 at 57.5 cents per mile driven for business use, down one half of a cent per mile. The standard rate for using an automobile for medical reasons or for calculating deductible moving expenses will be 17 cents per mile, down three cents from the rate for 2019. The rate applicable when using an automobile to provide services to a charitable organization remains unchanged at 14 cents per mile.

Download Printable Article (PDF) >>>

The optional standard rate may be used by taxpayers to decrease the record keeping burden associated with tracking actual automobile expenses. You would compute the permitted deduction by multiplying the business miles driven during the year by the standard mileage rate.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station.

The deduction is allowed only for that part of the expenses that is attributable to business use (sorry, commuting is considered personal use). Yep, reimbursing an employee using the vehicle for business so qualifies (even if it’s a certain pudgy accountant’s automatic Porsche Boxter). Of course, one can always substantiate such auto costs by keeping exact records of expenses such as gas, repairs, tires, licenses, registration, insurance, oil, car lease payments, auto depreciation, oil and other such maintenance costs allocable to the business usage.

Regardless, the standard rate does not include parking and tolls so you may deduct these costs separately on your tax return. If you feel it will be beneficial to use the “actual auto expense method”, you should keep track of business miles driven for the year and, at the end of the year, divide your business miles by the total miles driven (remember, commuting is considered personal miles). The resulting number is your business use percentage. You then multiply this business use percentage with your actual expenses to compute the auto expense deduction. Just note that the actual auto expense method requires you maintain accurate records of all your auto expenses as well as a record of your mileage.

This business standard mileage rate can be used for leased or owned autos but where the particular owned car uses the standard mileage rate, depreciation is assumed at varying cents per mile rates for those years in which the business standard mileage rate was, in fact, used. Abo and Company professionals, as tax preparers, need to know this information since the depreciation so described reduces the basis of the car in determining gain or loss when it is disposed of later on.

You should note that you cannot use the standard IRS mileage method if you used the actual expense method on that car (i.e. took depreciation) on a previous year’s income tax return or you use more than four cars for  business at the same time.

An employer’s reimbursements to employees for properly documented business expenses are not subject to payroll taxes, nor must such reimbursements be reported on the employee’s tax return. This tax-free treatment applies in the case of a mileage allowance, but only if the reimbursement rate is no more than the IRS-approved standard mileage rate. Note that reimbursements made after January 1, 2020 for mileage incurred after that date, 57.5¢ per mile is the maximum rate at which employers may reimburse employees for the use of their vehicles in your business activities without incurring a payroll tax or withholding liability related to the reimbursement. If employers choose to reimburse employees at a higher rate, the excess over 57.5¢ per mile is treated as additional income to the employee, subject to income and payroll taxes. Yep again – often a
bookkeeping nightmare.

One question we at Abo and Company get asked a lot, as we’re sure is the case with many of our tax-preparer colleagues, is about interest incurred on a car loan. You should note that interest paid by an employee on their auto loan is considered nondeductible personal interest. A self-employed taxpayer can, however, deduct the business portion of such interest paid as a business expense but the remaining nonbusiness portion is considered nondeductible personal interest.

You might be able to claim 100% bonus depreciation for heavy SUVs, pickups, or vans. This 100% bonus depreciation provision can have a hugely beneficial impact on first-year depreciation deductions for new and used heavy vehicles used over 50% for business. That’s because heavy SUVs, pickups, and vans are treated for tax purposes as transportation equipment that qualifies for 100% bonus depreciation. However, 100% bonus depreciation is only available when the SUV, pickup, or van has a manufacturer’s Gross Vehicle Weight Rating (GVWR) above 6,000 pounds. The GVWR of a vehicle can be verified by looking at the manufacturer’s label, which is usually found on the inside edge of the driver’s side door where the door hinges meet the frame.

Buying an eligible vehicle and placing it in service before the end of this tax year could deliver a juicy write-off on your return.

You can claim first-year depreciation deductions for cars, light trucks, and light vans. For both new and used passenger vehicles (meaning cars and light trucks and vans) acquired and placed in service in 2019 and 2020, the luxury auto depreciation limits are as follows:

• $18,100 for Year 1 if bonus depreciation is claimed;
• $16,100 for Year 2;
• $9,700 for Year 3;
• $5,760 for Year 4 and thereafter until the vehicle is fully depreciated.

Note that the $18,100 first-year luxury auto depreciation limit only applies to vehicles that cost $58,500
or more. Vehicles that cost less are depreciated over six tax years using percentages based on their cost.
Converting an asset that was used for business to personal use generally does not trigger gain or loss. When the taxpayer sells the asset, there will be a taxable gain to the extent that the sale price exceeds the adjusted
basis of the auto. However, under the listed property rules (i.e. applicable to passenger vehicles), if business
use drops to 50% or less at any time during the recovery period, earlier accelerated depreciation, special
depreciation and/or Section 179 deductions must be recaptured and reported as ordinary income. Converting
a business auto to personal use reduces the business-use percentage to zero, so recapture income will be
recognized at the conversion date if the auto was listed property used more than 50% for business.
Which method to use? Classic accountant’s “no answer-answer” – it depends. The optional standard mileage
method certainly saves time, has less record-keeping and is much easier to use (especially if records are difficult
to locate). For certain inexpensive cars to operate, the standard mileage approach might even yield a larger
deduction than the actual cost method. If you are well organized, retaining good documentation, use of the
actual expense method can result in a higher deduction. We find this often when the vehicle is more expensive
and where you can deduct an accelerated depreciation for the first few years you are using the vehicle for
business. Also, when you spend a lot on repairs, insurance and other costs to operate the car, the standard
mileage rate might result in a lower tax deduction. Yep, it just depends. Check with us at Abo and Company to
go over your particular situation.

FOR MORE INFORMATION:
Martin H. Abo, CPA/ABV/CVA/CFF is a principle of Abo and Company, LLC and its affiliate, Abo Cipolla Financial
Forensics, LLC, Certified Public Accountants – Litigation and Forensic Accountants. With offices in Mount
Laurel, NJ and Morrisville, PA, tips like the above can also be accessed by going to the firm’s website at www.
aboandcompany.com

Share

Share

Share