Apartment Industry Urges SBA, Treasury To Close Paycheck Protection Loophole
As companies across the country apply for Small Business Administration loans to help meet payroll and avoid even more unemployment claims, there are several industries that have been denied federal assistance because of the interim final rule. It lays out additional guidelines for the Paycheck Protection Program that small businesses affected by the economic fallout from the coronavirus pandemic can use to cover costs, including payroll and rent. Most notably, the multifamily housing sector was left on the sidelines.
Part of the problem stems from how payroll participants are counted with the use of third-party contractors, such as management companies, even when the burden of cost for payroll falls on the owner.
The Paycheck Protection Program enables businesses with more than 500 employees to qualify on a location-by-location basis if they are classified under NAICS code 72. The National Multifamily Housing Council and National Apartment Association are seeking confirmation from the SBA that all multifamily housing businesses, including off-campus student housing providers, would be able to qualify for the Paycheck Protection Program.
“The apartment industry is on the front lines of responding to the COVID-19 outbreak,” said Doug Bibby, president of the National Multifamily Housing Council. “Yet as more residents face job loss or furloughs and are unable to fulfill rent obligations, many owners/operators fear they, too, will not be able to satisfy their own financial obligations required to operate their properties. That’s why it is imperative that the apartment industry be eligible to participate in the program so they can continue paying our employees.”
Robert Pinnegar, president and CEO of the National Apartment Association, added: “The apartment industry is a cornerstone of the national economy, housing 40 million Americans and supporting 17.5 million jobs. Like many of our residents, the entire industry is facing extreme economic hardship. Apartment owners and operators must qualify for relief under the Paycheck Protection Program. Until Treasury and the SBA correct this imbalance, the housing and employment of a combined 57.5 million Americans is in jeopardy.”
The Paycheck Protection Program has raised many questions for housing providers seeking to weather the pandemic. Greg Brown, senior vice president of Government Affairs for the National Apartment Association, offers some insight here.
Q: Why has multifamily been cut out of the SBA loan provisions?
A: Multifamily hasn’t been cut out completely so much as it has been seriously limited by provisions of the SBA Paycheck Protection Program. Many sectors of the industry, such as residential property management companies with multiple physical locations, passive owners, apartment buildings and those who contract third parties for property management are currently ineligible per SBA guidance.
Q: How did rent look for the month of April? Why does the industry need this support?
A: April was a difficult month for the industry, but May will only be more challenging as the financial effects of COVID-19 continue to grow. Because COVID-19 took hold of the country in March, many residents still had the resources to make their April rent payment. Sadly, many will not have these resources come May. The industry also faces the prospect of rent strikes and confusion about rent obligations given federal, state and local eviction moratoriums.
Q: How could this affect the industry and the people it serves? What are the broader economic implications?
A: The industry’s need for financial support and payroll assistance will only increase as more Americans face unemployment and difficulty paying rent. If a large percentage of apartment companies are unable to apply for the SBA loan program, we could see more providers having to lay off or furlough employees, which would hurt the overall economy and the residents that the industry serves. Rental housing providers and management companies need to have adequate staff in order to maintain the property, process resident requests and manage business operations.
In short, you may see a reduction of housing quality and services as owners make tough decisions about reserves and reducing expenses. And some rental housing may lose financial feasibility and get removed from the market, creating greater affordability issues. The crisis could be especially devastating to smaller housing providers who ultimately make up a majority of rental property owners. These small businesses often function on low margins that cannot sustain substantial losses of rental income for any period of time.
Q: What is the industry asking the government to do with regards to multifamily and student housing providers?
A: We have five asks:
1. Create an emergency rental assistance program for those who are impacted by the COVID-19 crisis and struggle to cover housing expenses.
2. Allow more housing providers access to mortgage forbearance and ensure fairness and flexibility in its terms.
3. Provide financial assistance for property-level financial obligations such as property taxes or insurance payments and extend credit to multifamily mortgage servicers.
4. Expand the Small Business Administration’s Paycheck Protection Program to include all multifamily businesses, including student housing.
5. Better tailor the CARES Act eviction moratorium provision and safeguard owners’ ability to effectively manage their communities.
Q: What other relief/assistance challenges is the industry facing?
A: The eviction moratorium has proven to be especially challenging for the apartment industry. We need to see moratorium protections tailored to individuals affected by COVID-19; enacted only for the specified 120 days; applied to federally-backed mortgages and those with government assistance; and ensure the ability to evict for reasons other than non-payment of rent.
Overall, we need Congress to better tailor the CARES Act eviction moratorium provision and safeguard owners’ ability to effectively manage their communities.
Q: Are there other industries that are being affected in a similar way by the SBA loan stipulations?
A: Any industry that works with third-party management firms will face similar hurdles, especially given that sole proprietors are unable to calculate the compensation of independent contractors in their loan determinations.
Nevertheless, all industries will find unique challenges with the provisions of the Paycheck Protection Program given that no two businesses operate in the same fashion. The PPP is a financial obligation that must be weighed against the legitimate needs of a business. That being said, this doesn’t mean that some industries should be excluded from participation, and all industries should be given a fair shot at figuring out if their needs can be met under the PPP.