top of page

The (a)Political Side of Real Estate

In the world of commercial real estate, help is not on the way. The slow immolation of a quadrant of the economy has rung few alarm bells among our collective policymakers, and the implications for real estate and businesses are severe. Potential solutions abound, that is the good news (see more below). But both federal and local legislators have played the figurative Nero while industries flame out, and with them, the need for much of its real estate. The economics of this is old news by now. What is more perplexing, and squeamishly political, is the absence governmental action to help.

Yes, there was the PPP, which helped too few too little, for most it failed to cover one month of expenses, and went mainly to subsidize employees rather than to keep businesses operating. Well intentioned and mercifully speedy in execution, it failed to address underlying problems. The federal government has been gridlocked ever since. The District government has done less, initially offering businesses $25m, out of a budget of $16.8 billion. Compare that to $464m spent on roadways, $365m for a new hospital, $77m to modernize the District's financial system, $66m announced in one day for new subsidized housing, or $25m for capital improvements around Howard U Hospital. Setting aside the merits of any of these, real estate and businesses generate many of the funds that support these: $2.9b in property taxes, $1.08b in sales taxes in 2019. Retailers and restaurants pay a disproportionate share of both. Take away the source of the revenue and the spending priorities become immaterial.

Before belaboring what we haven't done, think about what we already know the government could do:

-Replace HVAC filters in restaurants and shops: Airlines use highly effective HEPA filters, and have been declared safer than restaurants, despite their tight spaces and much more crowded interiors thanks to the efficient air flow and filters. A typical restaurant would cost less than $10,000 to retrofit, and could be administered with a simple grant. The same technology applies to schools and office buildings.

-Subsidizing restaurants: In July Britain began paying 50% of diners' orders up to $12. Countrywide, the program was expected to cost $629m and save 1.8m jobs.

-Funding insurance companies to pay lost revenue claims: The insurance industry is already equipped to efficiently process and adjudicate those claims, but has to date denied them, the volume of which would overwhelm the insurance system.

-Foregoing property or sales tax: One of the major funders of state and local governments, property tax payments are a major burden on landlords, who pass the costs through to retail tenants. A temporary break on sales or property taxes would lift the margins on many failing businesses.

-Arbitrating commercial evictions: Some jurisdictions have required guided arbitration rather than leaving commercial tenants to the mercy of landlords, some (but not most) of whom are insisting on 100% of rent.

-Small business grants: interest-free loans and grants to truly small businesses could help them through shutdowns. Philadelphia implemented this system back on March 17th.

-Rent relief funds: A government administered program to help affected tenants pay rent would help both tenants and landlords, stop evictions, and save jobs, like North Carolina has done.

-Another stimulus package: The PPP is a distant memory, and federal lawmakers have yet to agree on how to move forward.

Washington DC commercial real estate

Many other ideas exist, many of them on testing, regulation and communication. Sadly, most of these ideas date back to March or April. Locally, Virginia has been kindest to its businesses, recently increasing grants to small businesses from $10,000 to $100,000, and many Virginia businesses report receiving larger grants faster than their DC or Maryland counterparts. DC, the most challenged due to its density and concentration of office workers, has done far less. It offered the aforesaid $25m, up to $10,000 per business, though many businesses report getting less, or none at all. The District added $4m for "microgrants" (up to $6k per restaurant) for outdoor winterization, and in October, set aside another $3m for additional microgrants to help businesses "pivot", not available to any businesses that owe money to the city.

The problem is that businesses - restaurants, theaters, nightclubs, the travel industry, building owners - are not facing microproblems. And as winter arrives, another round of business closures is upon us: In the last 2 weeks, complete closures have been ordered in Michigan, New Mexico, Oregon, Washington, and much of California, as well as cities: Philadelphia, Chicago, St. Louis and San Francisco. Others will soon follow.

66 views0 comments


bottom of page