Friday, May 22, 2020

How The Main Street Relief Fund Will Help New Hampshire's Small Businesses

There is more relief coming for small businesses in New Hampshire through the Governor’s Office for Emergency Relief and Recovery (GOFERR). The relief package was announced on Friday the 15th of May, which is also the day the first applications could be made. Funding in the amount of $400 million of expenditure has been authorized to be given based upon needs. 

With the authorization of the CARES Act, Congress created waves of relief for individuals and businesses. At this point most of us are familiar with the acronyms of PPP (Paycheck Protection Program) and EIDL (Economic Disaster Relief); there were additional benefits to individuals such as the stimulus checks and expanded unemployment benefits. In addition the CARES Act created Coronavirus Relief Funds. These funds were to be given to each state to be used as the state sees fit.

According to the Treasury, the funds are “to provide ready funding to address unforeseen financial needs and risks created by the COVID-19 public health emergency”. In addition the federal government put up some rails on how the dollars could be spent. Some of that is still up for interpretation so we will leave that for another blog.

New Hampshire was given $1.2 Billion in flex funds, and $400 Million of it has been earmarked for small businesses under the Main Street Relief program. Our interpretation is that the small businesses of New Hampshire really made their cases. The PPP and the EIDLs were helpful. However, some of the benefits of those programs either have been slow to pass or could not be realized by the businesses as they have been all or partially closed during the qualifying period. Additionally, as was widely publicized, the PPP was a race to the application booth which created the need for the second round of funding. 

To put the amount of funding in context, in just New Hampshire the initial round of PPP loans covered some 11,000+ businesses and over $2 Billion dollars. This new Main Street Relief Program will be funded with roughly 20% of that amount. I never thought I would say that $400 Million may seem like limited funds, but it is so. As a result it appears that the State is adding qualifying language to their application process.

The PPP loans were first come first serve, and by and large had no liquidity test for approval. The Main Street Relief funds have two main differences. First, there is an open round of application. So long as you apply by May 29, 2020 you will be eligible. But it does not matter when in that two week period you apply. The second difference is that you must tell the State all of the additional funds you have received from the CARES Act. This presumably will allow them to prioritize the funds to small businesses that were left off of the carousel the last go around.  All of the various dates and detailed information can be found here (

From a real estate perspective there are a few items that are not clear, at least not yet. Are independent contractors as small businesses eligible for these funds? Are businesses that are otherwise holding companies for real estate eligible? Are the funds a loan, a grant or a blend? What can the funds be used for within the businesses? It will take time for these things to come to light, but in the meantime our advice is to review the application and make sure you are lined up prior to the May 29 deadline. 

Thursday, May 14, 2020

Liquidity In The Debt Markets During COVID-19

Despite the late snow into April it is spring in New England and we are getting ramped up for summer. Lawn, irrigation and project crews have never been busier. Investors with maintenance contracts are spending on their property despite the challenges being faced with COVID. Some of that spending is coming from prepaid contracts, some from cash from owners, while other capital is coming from the debt side of the house. So how stable is that debt or line of credit?

Lets start pre-COVID. Back over the holidays when we were all carving a turkey, this was not something to consider. The markets were flush with debt capital to deploy. This created not only low interest rates but also flexible terms such as lower down payments and other benefits. 

Some have stated that the 2019 liquidity in the debt side was similar to the pre-financial crisis lending situation. From our perspective this is not the case. There were low interest rates. There was flexibility in lending. But that is where the similarities stop. When you think back to the challenges and the aftermath of 2008 and 2009, it was the underwriting.

Larger banks, many of them from out of state came in and dropped money across all asset classes like it was a snow day in April. When the dust started settling it became clear that the fundamentals were poor. But that only became clear when the banks had to take them back. We first hand reviewed these assets a decade ago when they came to us for valuations on the work outside, we can say that the fundamentals were off. They were off before the financial crisis. Keep in mind that the underwriting the local lenders were using was still more conservative. Aggressive but conservative.

Coming back to the 2018 and 2019 economy, there has not been as much competition from out of state lending institutions. The local lenders were flush with debt capital to deploy. They were flexible however they were not irresponsible. The fundamentals, particularly on the income valuation side were strong but not as crazy as they were 10 to 15 years ago. On the face value one could say that the price of multifamily on a per unit basis in Manchester has risen 30 to 40% over the past three years. You may consider this a hyperinflation, however the low vacancy rate and the underlying cash returns were still in place. In short the fundamentals were there. 

Now we come to Spring of 2020. Are the fundamentals still there? We have still historically low vacancy rates for multifamily, office and industrial. The investment market has not been able to get enough of single tenant net leased assets. There is no inventory so pricing for assets is still high. However some lenders are looking concerned on the fundamentals, just different ones than buyers are interested in.

There is a concern of the softening of the leasing market, particularly on the multifamily and the retail side. Lenders look at B&C multi assets as a more risky proposition and some are pulling out entirely (in the short run) while others are looking at some principal and interest escrow that would have seemed strange to ask for just 90 days ago. There is some evidence to back their claims up. Non-essential retailers are asking for rent abatements in exchange for more term; apartment tenants impacted by the current situation have come to landlords seeking payment plans. 

However despite these challenges there is a huge influx of capital into the market. Despite the challenges with the roll out the CARES Act did what it was intended in the short run. It dumped so much capital into the market that it created a bit of a rise in the stock market, it kept local businesses open and it kept some mortgages and real estate tax bills paid. Some lenders and buyers view this as the short term pain and the liquidity from the Fed will act as the bridge because the fundamentals are still sound.

The take away for buyers and investors is clearly the dynamic has changed. If you have not had a call with your lender in a month, consider doing so. Clearly understand what their view of the world is and how they are reacting to this economy. And continue to do so, weekly if necessary, they are as much your partner as another equity holder. Now when you go to invest back into that Spring time clean up you and your debt partner will be on the same page. 

Thursday, May 07, 2020

What will reopening the economy look like in New Hampshire?

Many folks have been watching with a keen eye what it will look like when the economy “reopens”. On April 27 we watched as States like Georgia had some of the stay at home restrictions lifted. What does that mean for New Hampshire and the rest of New England?

The New York Times had an article in April contemplating what the restaurant industry would look like upon a re-open. In the article it looked to China, which is seemingly on the other side of the curve from the United States. There restaurants must keep tables five feet apart and customers’ temperatures are taken at the door. Business is reported to be some 50% of what it was pre-COVID.

In Georgia there was reopening. The State has fared better than some New England states despite having such a large international airport. The government created guidelines on how to reopen the economy. Each business had a list of 39 guidelines to ensure compliance. This consisted of everyone wearing masks to the above mentioned small density inside. Some restaurants, like the famous Waffle House, did act to reopen. Others did not, citing safety or not wanting to be the first.

Around the nation some restaurants do wish to open but want to do so safely. Since the shut down, some restaurants are better equipped for takeout while others have struggled to change their offerings. Anecdotal evidence of restaurants that we spoke with indicates that their gross receipts were about 10% to 20% of their average weekly gross from the same time last year. Many owners were pleased that it kept at least a handful of people employed, but obviously it created huge ripple effects.

Up in New Hampshire there is a reopening task force created by the Governor to explore the same issues that restaurant owners are facing in Georgia. In the same week, as restaurants and other shops were opening up down south, the New Hampshire task force was drafting a document called “Universal Guidelines for All New Hampshire Employers and Employees”. The five page document is an instruction guide for policies that need to be adopted to reopen. As the name suggests it is internal facing and does not contemplate customers as would exist in restaurants, retailers, and some service industries. The task force was writing those policies, and have drafted guidelines for restaurants, state parks, manufacturing and even golf. You can find links to those guidelines here.

It is not just the government that is wrestling with these issues. A Change.Org petition from Manchester has received some high publicity. The concept is to shut down Elm Street to auto traffic, and make it for pedestrians. In the warm summer months restaurants can have more sidewalk space for their tables to create more social distancing. The thought is it will help kick start an otherwise hard hit portion of the economy and their employees.

Presently the pandemic is measured in weeks while the concept of reopening is measured in days. As more time passes the path for restaurants, their employers, employees and landlords will become clearer. 

Thursday, April 30, 2020

Leases In The Time Of COVID-19

COVID-19 has had a giant impact on our way of life, though at his point that doesn’t need to really be said. But with every day that brings us a new normal that we have to adjust to, it also brings new repercussions. That is also true for the commercial real estate sector, particularly commercial real estate investors and users.

As more and more businesses begin to shut their doors to work from home, or because of government mandates, questions have begun to arise for both owners of commercial spaces and their tenants. The biggest question of all, “do tenants have a right to stop paying rent due to the coronavirus?” This is a complicated question, one that, depending on how long the pandemic lasts, might be answered by the state, if not federal, government.

The answer to the question is, in most cases, no. Whether a tenant has a right to stop paying rent due to “force majeure” or any other number of clauses is ultimately based upon the specific language and terms laid out in each specific lease agreement. This, though, does not take into consideration if a floor or entire building is closed down by either the property manager or owner. Before mandating a floor or building closure, landlords and property managers should carefully review all possible impacts that decision could have.

While the legalese of each specific lease will ultimately determine whether a tenant is required to pay rent, landlords and tenants should still review their leases to ensure they understand their rights in these unprecedented times. 

At the end of the day though, due to the stress that many tenants, especially those in retail and hospitality, will be feeling at this time, the government may see it fit to step in and take extraordinary measures to ensure that businesses and people survive the financial impacts of the pandemic. For multifamily owners and tenants there have already been discussions within government of suspending rent payments, and some states, including New Hampshire, have already suspended evictions. This is also inclusive of commercial evictions as well.

The most important thing for tenants and owners to do right now is open up communication channels to discuss issues both tenant and landlord face, and come up with creative solutions that benefit both parties. For example, relaxing enforcement of continuous operation covenants, or, if a tenant comes to a landlord needing rent relief, entering into short-term arrangements that provide partial base rent abatement.

While challenges do indeed lay ahead, they can be overcome. By understanding that we are all feeling financial and personal stress right now, and finding ways to work with each other, we can come to a common ground that is fair to both parties. Taking this approach in life, and in real estate, will make dealing with the effects of COVID-19 at least a little easier to handle.

Thursday, April 16, 2020

Maintaining The Health Of Your Investment Property During COVID-19

The COVID-19 Virus has made a giant impact on the health of people around the world. We encourage everyone to be vigilant and follow the guidelines in place to protect oneself. Not to minimize the health effect, these articles will be about COVID-19’s impact on real estate, which is our expertise. The stock and bond market is widely transparent on a minute by minute basis and we hope to provide a transparency into the real estate market.

COVID-19 has thrown us all into unprecedented times. We’re all getting used to a new normal, and that is also true for commercial real estate investors and users. With the highly contagious nature of COVID-19, and its ability to live on different surfaces for multiple hours, and sometimes days, the cleaning of work spaces and common areas has never been more important to maintain the health of building tenants and guests.

But, responding to this pandemic starts with awareness. Owners and property managers should consider educating their tenants on steps that they can take to limit the chances of others getting sick. Spreading information through emails, mailers, and posted notes can be done to ensure that tenants are aware of what the disease is, how to prevent it, and how landlords and property managers are monitoring the situation and keeping tenants informed of updates, and especially what precautions are being taken.

Awareness is only part of the battle, though. Landlords and property managers should be proactive about disease control measures. The frequency of regularly scheduled cleaning could be increased, with a primary focus on making sure that regularly touched surfaces, such as door handles, counters, devices, etc. are cleaned as frequently as possible. Consider stocking up on disinfectants and supplies, and hand sanitizer and disinfecting wipes could be made available in all common areas.

According to some experts, though, the first line of defense against COVID-19 is improving a building’s air quality. Improving air quality is not only the best way to improve a building’s health, but also give it its biggest ROI. Owners or facility managers could consider running the fans, upgrading the filters, and keeping the filters clean. Also, by letting in fresh air in large quantities, owners and property managers can help dilute airborne contaminants, reducing the risk of infection.

If improving air circulation is not an option, then investments could be made on improving air circulation. By upgrading filters to what’s known as an MERV rating of 13 or higher (which is what hospitals use) filtration systems will be able to catch more than 80 percent of viral particles. Higher humidity ranges, between 40 and 60 percent, are also optimal for lessening a virus’ ability to spread, but tenants’ comfort level should be kept in mind when exercising this option.

In the event that a guest visiting the building has been diagnosed with COVID-19, owners do have an obligation to notify all other tenants and occupants of the building that a person who has entered the building has tested positive for the virus, and what steps are being taken to ensure tenants’ health and well-being. All common areas should be, if possible, closed off for a deep clean and disinfection. Depending on the terms of the lease the tenant signed, owners and property managers may or may not be responsible for the deep clean of the tenant’s space, and that includes any extra precautionary cleaning as well.

Owners, property managers, and even tenants, can no longer sit idly by and hope that COVID-19 doesn’t affect them. It is all of our responsibility to help flatten the curve, and that begins with being proactive about the health of a building. The sooner we flatten the curve, the sooner we can get back to normal.