Due to the unpreceded nature of the Corona Virus, the Playbook for the response to Commercial Real Estate related issues is being written as we go. California Governor Newsom issued an executive order March 16 authorizing local governments to halt evictions for renters until May 31st. He also asked that banks and financial institutions halt foreclosures and related evictions while the order is in place. This, however, does not relieve a tenant from their obligation to pay rent, nor does it restrict a landlord’s ability to recover rent.
The Federal Government has also directed Fannie Mae, Freddie Mac and HUD not to pursue residential foreclosures. For commercial borrowers and businesses because of the CARES Act there is the and Small Business Paycheck Protection Program (PPP) and SBA Debt Relief Program. PPP loans can be forgiven when used for payroll, interest on mortgages, rent & utilities as long as the employer maintains or quickly rehires employees and maintains salary levels.
If you are a multifamily (apartment) property owner, deferrals are allowed for Fannie and Freddie loans as long as you do not evict renters who are unable to pay their rent due to the COVID-19 outbreak.
For those of us that use the AIR forms, most have the requirement for “business interruption” insurance. So, does this "business interruption" insurance will cover the Lessee for loss of income? According to Usman Mohammed, Consensus Legal P.C. “business interruption insurance typically requires ‘physical damage’ to property, such as from a fire. However, if a business is able to confirm (or make a plausible showing) that the virus was present at their business, it may constitute ‘physical damage’ and trigger coverage. Note: we are not insurance experts, and there are many nuances and technical insurance coverage issues involved, therefore please discuss with your insurance advisor.”
Look for additional updates here regarding COVID-19 and Commercial Real Estate, feel free to reach out to discuss anything further.