Fiscal Package Brings Aid to Workers And Businesses Impacted by COVID-19

 

 

I
CANADA EMPLOYMENT APRIL 2020
I
Research Brief
Fiscal Package Brings Aid to Workers And Businesses Impacted by COVID-19
I
Global health crisis causes shock to labor market. Social-distancing measures and the closure of many businesses to stem the spread of COVID-19 have forced companies to temporarily lay off workers, contributing to 1.01 million lost jobs in March. These events have also led to a dramatic shift by consumers to e-commerce and necessity retailers. Some firms are scrambling to fill positions as they grapple with a surge in demand, which will offset some of the losses. Recently enacted fiscal stimulus will provide economic relief through this unprecedented period.

Government measures expand unemployment benefits. Ottawa announced a stimulus package totaling more than $200 billion that injects cash into the economy through wage subsidies, government-backed loans, tax deferrals, and grants to help individuals and companies weather the current economic storm. A key component of the new measure is an expansion of the employment insurance benefit that will help those who have lost work due to COVID-19. The Canada Emergency Response Benefit provides those directly impacted with $500 per week for up to 16 weeks, which could be enough to fully replace the wages of low-wage workers who have been hit the hardest.

New programs aim to shore up small businesses. Companies that have registered a sharp reduction in revenue as a result of COVID-19 are eligible to receive aid under the Canada Emergency Wage Subsidy. The subsidy will cover up to 75 percent of an employee’s salary and wages, a maximum benefit of $847 per week over a 12-week period starting March 15. Firms of all sizes across all sectors are eligible to receive the subsidy. To qualify, a company must have recorded at least a 15 percent drop in revenue in March and a 30 percent fall in April and May. Small and medium-sized enterprises that are in need of additional aid to maintain operations and keep workers on staff can tap into the Canada Emergency Business Account. The benefit provides businesses that paid between $50,000 and $1 million in total payroll last year with a loan of up to $40,000 with 0 percent interest.

I
Follow Us on Twitter @MMReis
Developing Trends
I
Unemployment rate rises as coverage grows. The jobless rate jumped 220 basis points to 7.8 percent in March, the largest single-month increase in records going back to 1976. Unemployment is likely to trend higher over the coming months as the full impact of layoffs is recorded in upcoming surveys. The expansion of unemployment benefits under the stimulus package could contribute to a higher unemployment rate.

Coronavirus forces spending changes, creates demand for jobs. Widespread stay-at-home orders and restrictions on gatherings have prevented consumers from spending money in ways they normally would. This shift has heavily impacted grocery stores, pharmacies, and direct-to-consumer delivery providers. Businesses including Walmart, Amazon, and Shoppers are adapting to new safety practices while meeting heightened demand, creating an immediate need for more labor. To fill hundreds of thousands of open positions, recruiters will turn to the recently unemployed.

I
1.01 million
Jobs Lost in March 2020
I
7.8%

Unemployment Rate as of March 2020
I
I
* Through March
Sources: Marcus & Millichap Research Services; Statistics Canada

 

IRS Loosens Timelines for 1031-Exchange Buyers

 

 

I
IRS APRIL 2020
I
Research Brief
IRS Loosens Timelines for 1031-Exchange Buyers
I
Section 1031 of the Internal Revenue Code enables real estate investors to defer capital gains on income-producing property when those gains are used to acquire a like-kind investment. Colloquially, a 1031 exchange is the transaction in which an investment property is liquidated and the proceeds from the sale, including capital gains, are used to acquire additional income-producing property or properties. For the exchange to meet IRS standards, buyers have 45 days from the initial sale to identify a replacement property of equal or greater value and 180 days to acquire that asset.

In an effort to relieve pressure on 1031 timelines while much of the country is shut down and lenders are focused on processing thousands of loans initiated under the CARES Act, the IRS has temporarily altered the requirements to meet its standard. Under new guidance, both the identification and acquisition of the replacement property, or upleg, has been extended. If the identification deadline falls between April 1 and July 15, the new deadline is July 15. Likewise, if the 180-day purchase deadline falls between April 1 and July 15, the new deadline is moved to July 15. Further guidance from the IRS may be necessary due to a conflict with existing rules in Section 17 of Rev. Proc. 2018-58 that extended 1031-exchange timelines during a federally declared disaster.

The implications of the altered guidance will impact all stakeholders active in the 1031-exchange market, including a significant number of investors already on the upleg of a transaction. Shelter-in-place orders slowed the pace of closings, which could have left some investors responsible for capital gains taxes despite identifying a replacement property and attempting to purchase the asset within the allowable window. As investors seek clarity on conditions, some identifications may be delayed until closer to the July 15 deadline, creating a potential new bottleneck on intermediaries.

Investors will welcome additional breathing room at a time when most steps in the process are taking additional time. The pressure on buyers to identify a property that will close quickly rather than one that meets investment goals has been alleviated, and longer due diligence periods may change the type of attractive properties they can identify. It reiterates to sellers that the investment market continues to close transactions despite headwinds. Furthermore, the attractiveness of existing available properties may change as buyers reevaluate post-pandemic conditions.

I
Follow Us on Twitter @MMReis
Important dates:
I
I

 

CARES Act to Provide Aid to Workers and Businesses Impacted by Health Crisis

 

I
EMPLOYMENT APRIL 2020
I
Research Brief
CARES Act to Provide Aid to Workers & Businesses Impacted by Health Crisis
I
Global health crisis causes shock to labor market. Restrictions on personal mobility due to the spread of COVID-19 have forced many businesses to temporarily close, contributing to 701,000 lost jobs in March. These same events forced consumers to shift spending more toward online storefronts and necessity retailers. Facing more demand, companies in these industries are hiring, which will help offset contractions in other sectors. Recently enacted fiscal stimulus will provide further aid.

Government measures bolster unemployment benefits. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides cash injections, loans, tax credits, and grants to help individuals and companies weather the current economic storm. One key component of the act are direct payments to individuals of up to $1,200 per person and $500 per child under 17. These payments, which begin to phase out for those making more than $75,000 per year, will help many people meet immediate financial obligations. The act also expands current unemployment benefits to include an additional $600 per week until July 31 on top of state-sponsored payments. Independent contractors can also now apply for benefits, which may drive unemployment higher than it otherwise would have been under the original definition.

New program aims to shore up small businesses. Companies with fewer than 500 employees can also benefit from the CARES Act. The most notable resource is the Paycheck Protection Program (PPP), which facilitates loans equal to two months of payroll from 2019 plus an additional 25 percent, capped at $10 million. These loans are forgivable if used within eight weeks, staff are retained or quickly rehired, and 75 percent of the money goes toward paying workers. The remaining 25 percent can be applied toward other expenses including lease obligations. Restaurants and hotels gain expanded eligibility, with employee size determined at the property level instead of for the company as a whole. Finer details of the PPP are still being determined, which may delay the delivery of these resources to businesses.

I
Follow Us on Twitter @MMReis
Developing Trends
I
Unemployment rate advances as coverage grows. The unemployment rate rose 90 basis points to 4.4 percent in March, the largest single-month jump since January 1975. Weekly first-time jobless claims also surged past 6 million for two weeks in a row. Expanded unemployment eligibility and benefits, including an additional $600 per week in federal aid, create strategic options for companies and contribute to higher joblessness.

Coronavirus forces spending changes, creates demand for jobs. Widespread stay-at-home orders and restrictions on gatherings have prevented consumers from spending money in ways they normally would. This shift has heavily impacted grocery stores, pharmacies, and direct-to-consumer delivery providers. These businesses, including Walmart, Amazon, and CVS, are adapting to new safety practices while meeting heightened demand, creating an immediate need for more labor. To fill hundreds of thousands of open positions, recruiters will turn to the recently unemployed.

I
701,000
Jobs Lost in March 2020
I
4.4%

Unemployment Rate as of March 2020
I
I
* Through March
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics

 

Unemployment Claims Hit All-Time High, Ending a Decadelong Run of Job Growth

 

 

I
UNEMPLOYMENT MARCH 2020
I
Research Brief
Unemployment Claims Hit All-Time High, Ending a Decadelong Run of Job Growth
I
Coronavirus pandemic brings job creation to a halt. A record 3.28 million workers filed for jobless benefits in the week ending March 21 as the impact of COVID-19 hit the U.S. economy, putting an end to the nation’s historic run of employment gains. Applications for unemployment insurance last week surged to nearly five times the previous record as millions of companies have issued layoffs or furloughs. Many service businesses like hotels, restaurants, barber shops, gyms and more have closed in response to the coronavirus pandemic, reverberating through the economy.

Recent economic expansion positions commercial real estate to withstand economic shock. Through the end of February, the economy had registered a record 113 consecutive months of job growth, expanding payrolls by more than 22 million. The unemployment rate was 3.5% last month, a 49-year low which contributed to an exceptionally tight labor market, pushing companies to increase wages. In the process, national vacancy rates are at or near cycle lows for most property types, despite elevated construction activity in several sectors, sustaining upward pressure on rents. Robust property metrics highlight the value proposition of real estate during a time of increased economic uncertainty.

Legislation creates new provisions as unemployment climbs. The sharp rise in unemployment claims, greater financial market volatility, and swift monetary and fiscal policy measures illustrate the rapidly moving nature of the coronavirus pandemic. With support from a $2 trillion stimulus package under consideration by congress, workers and business could be given a cushion against the financial fallout of the virus. The legislation widely expands unemployment insurance protections for freelance and gig workers, while also funding state coffers. Depending on the duration of the economic downturn, restaurants, hotels and other service businesses may need to staff back up fast, potentially reversing the rapid rise of the nation’s jobless rate. This would be unlike the extended period of high unemployment following the
2007-09 financial crisis.

I
Follow Us on Twitter @MMReis
Developing Trends
I
Grocers and other essential businesses still hiring. There remains several bright spots to the labor market as large retailers including Walmart, CVS, Amazon and others are attempting to fill nearly 500,000 positions. Healthcare organizations are also adding more staff as hospitals, clinics and senior housing facilities need workers on the front-lines. While the hiring push at essential businesses is encouraging, any coronavirus induced job gains will not likely offset the layoffs the millions of workers face.

Fed makes unprecedented move to keep markets functioning.
The Fed unveiled a series of measures last week in an effort to backstop financial markets and increase access to capital. The Bank committed to buy an unlimited amount of Treasury bonds and commercial mortgage-backed securities to shore up markets. It also announced new lending facilities to keep credit flowing to businesses as well as state and local governments, creating programs to purchase highly rated corporate and municipal bonds.
I
3.28 million
Initial Jobless Claims Filed in the Week Ending March 21
I
3.5%

Lowest Unemployment Rate in 49 Years in
February 2020
I
I
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics