U.S. MarketFlash | COVID-19 Prompts the Largest Fiscal Stimulus in U.S. History

Executive Summary

• The COVID-19 stimulus bill passed by Congress today, formally called the CARES Act, will inject $2.1 trillion (9% of U.S. GDP) directly into the U.S. economy.
• Total value of the stimulus, including new credit facilities created by the law, is $5.6 trillion—almost 25% of U.S. GDP.
• Expedited Small Business Administration (SBA) loans will help small businesses retain employees.
• Every commercial real estate sector will be aided by the CARES Act.
• Short-term deterioration in market fundamentals will be followed by a strong recovery starting later this year.
• Policymakers will deploy additional firepower to aid the U.S. economy, if needed.

What Does the CARES Act Do?

The CARES Act provides resources for people, businesses, states and hospitals that are dealing with the spread of COVID-19. The stimulus package provides support directly and indirectly to all sectors of the economy. With total potential support equivalent to one-quarter of U.S. GDP or $5.6 trillion, this stimulus is unprecedented in size.

Workers & Families

• $250 billion was allocated for enhanced unemployment benefits. This will provide an additional $600 per week for up to four months.
• $300 billion for direct payments of $1,200 sent to all adults who filed tax returns in 2019 and made less than $75,000 per year ($150,000 for couples) and $500 per child. Smaller amounts will be distributed to people making up to $100,000 a year or couples earning less than $200,000.

Large Businesses

• $500 billion in assistance for large businesses that have been particularly hard hit, such as $32 billion in grants for airlines.
• Credit facilities backed by approximately $471 billion of the $500 billion allocated for large businesses will allow for up to $4 trillion in liquidity support for large businesses. This means easy access to cheap loans.

Small Businesses

• Small businesses will receive direct help via $350 billion for SBA loans that use an expedited process—administered by private financial institutions—to cover payments for rent/mortgage, utilities and payroll. These loans will be converted into grants at the end of the year if used for intended purposes.

Public Sector

• $150 billion for states.
• $25 billion for public transportation.

Other Aid

• $117 billion for hospitals.
• $198 billion for “other.”

Much of the aid for commercial real estate will be in liquidity support for tenants. Occupiers of all sizes across the office, retail, industrial and hotel sectors may qualify for aid.

A key component is SBA loans for small companies—particularly food & beverage operators, which have been severely impacted by mandatory closures. For businesses with less than 500 employees, loans will be forgiven by the government at the end of the year if funds are used as intended. Loan amounts can be up to $10 million and will be calculated as 2.5 times the pre-crisis monthly payroll amount. More government guidance on this will be forthcoming.

Due to the sheer scale of the CARES Act, every commercial real estate sector will be aided. Beyond fiscal policy, additional crisis measures by the Fed will help ensure that property market fundamentals and capital markets for commercial real estate are supported through this turbulent period. Although enacted today, there will be a lag of up to three months before certain parts of the stimulus are fully deployed.

CRE Impacts

Office

Large occupiers will benefit from up to $4 trillion in liquidity via new credit facilities. Smaller occupiers may receive help via expanded SBA loans. All of this should help stabilize employment and demand for office space.

Retail

Liquidity support will encourage retailers to retain employees. This is especially important for food & beverage operators and other small retailers who will have loans forgiven if funds are used for paying rent/mortgage, utilities and payrolls. Furthermore, expanded unemployment insurance and direct payments to taxpayers making less than $100,000 will help sustain consumers through the crisis and aid economic recovery.

Industrial

Support for airlines and cargo companies will ensure supply chains can ramp up with less disruption once activity picks up. Indirectly, support for consumers is also positive for industrial markets. E-commerce demand will be bolstered, as public health concerns dictate closures of retail locations and consumers remain nervous about public spaces.

Multifamily

Measures designed to stabilize the labor force will support household formation. Direct support to citizens via cash payments and enhanced unemployment benefits should also help limit any deterioration in multifamily fundamentals. Fannie Mae and Freddie Mac—along with other financial institutions aided by new regulatory flexibility—are providing multifamily borrowers with forbearance options. This forbearance is contingent on landlords suspending evictions of any residents who are financially impacted during the crisis and on proving that revenue streams were severely impacted.

Hotels

Liquidity support for businesses and households, along with aid to airlines, will facilitate the return of business and leisure travel. Nevertheless, the economic impacts from various measures taken to contain COVID-19 will continue to reverberate across the sector beyond the near term.

Bottom Line

A sharp drop in economic activity—produced by necessary public health mandates—has been met by a large fiscal and monetary stimulus of unprecedented scale. By preserving the supply side of the economy, the CARES Act will enable a faster recovery.

Although the U.S. economy will contract during the first half of 2020, the CARES Act will help ensure that economic activity can rebound more quickly. CBRE’s updated house view shows full-year GDP contracting by 2.8% in 2020 (with steep drops in H1 2020), followed by growth of 5.9% in 2021.

To be sure, severe economic dislocations are underway. However, the CARES Act will broadly ease economic pressures and lay the foundation for a strong recovery. Though timing will vary somewhat—particularly across property types—commercial real estate market fundamentals will reflect the short-term weakening in the economy, followed by a strong recovery heading into 2021.

Governments and central banks around the world are taking similarly powerful measures. These responses will complement U.S. efforts by boosting the global economy and improving the medium-term outlook for domestic activity.

Figure 1: U.S. Economic Outlook - CBRE House View (% Changes)

Source: CBRE Research, March 2020.