According to a report at the Wall Street Journal, landlords and real estate firms are reaping millions in federal coronavirus aid -- that should have been off-limits to them -- by using a legal loophole.
The report notes that the Paycheck Protection Program, approved by Congress and signed by Donald Trump, was designed to support small companies and assist them with keeping workers employed during the coronavirus pandemic. However, so-called "passive businesses that collect rent and businesses that profit primarily off of price speculation" were excluded as well as companies that primarily develop or lease real estate."
"Because most real-estate firms are private, tracking the number of aid recipients or the total amount of funds the industry has received is next to impossible, say real-estate attorneys and accountants," the Journal reports. "But they are aware of at least dozens of property companies that have received in aggregate tens of millions of dollars or more because of a legal loophole that allows them to apply through related business units, such as management companies or construction companies."
As the report explains, "This means Small Business Administration (SBA) funds could flow to property investors, something that was never intended. Representatives of the real-estate industry have said that even passive real-estate owners employ essential workers and should be eligible for the government funds like any other business."
One such firm, Time Equities Inc, which controls over 30 million square feet of real estate was the recipient of $3.6 million in federal PPP loans, according to Francis Greenburger, the company’s chief executive.
Greenburger claimed that the process to get the money was simple.
"The firm’s PPP lender did minimal due diligence and didn’t check whether the company was eligible for the money, Mr. Greenburger said. “It was really a self-approved process based on the guidelines they set forth, which were so vague as to be basically impossible to understand,” he explained," the Journal reports.
"Critics say that well-financed real-estate companies shouldn’t be eligible for government cash grants. They can raise capital in other ways, by taking out mortgages or selling buildings," the report states. "A company affiliated with Dallas hotelier Monty Bennett, for example, had an agreement to sell a Florida hotel for $120 million, but backed out of the deal after learning it had been approved for millions in PPP loans, according to people familiar with the matter."
According to R.J. Cross with the U.S. Public Interest Research Group. “Unfortunately…the real-estate sector getting money from a program meant for actual small businesses isn’t an anomaly. It’s more evidence that the Treasury and related programs in the Federal Reserve need more oversight.”
One company, Veritas Investments, which manages $3 billion in real estate in San Francisco’s announced they would return the $3.6 million they received back to the government after House Speaker Nancy Pelosi (D-CA) called out the company, saying, “Larger companies like Veritas…which has billions in assets and access to liquidity through other sources, were not the intended beneficiaries of PPP loans.”
"Not every real-estate-loan candidate succeeded. Some property managers said their applications were rejected because the bank didn’t believe they qualified, said Sam Gilboard, manager of public policy at the National Apartment Association," the report added. "Smaller real-estate owners, like family businesses that may own just one building, are less likely to have separate entities for their property-management operations."
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