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Global Public Policy

ICSC asks for Main Street Lending Program improvements

July 24, 2020

On July 21, ICSC, as part of a coalition of commercial real estate (CRE) associations with members impacted by COVID-19, submitted a joint letter to the Senate Banking Committee urgently asking for changes to the Main Street Lending Program (MSLP) to assist commercial real estate owners and tenants. The committee is examining the effectiveness of the program in light of its late start and lukewarm response from lenders and borrowers.

The letter suggests ways the program could be revised to assist commercial real estate businesses that are struggling financially due to the mandated closures and other COVID-19 public safety measures. The coalition called on Congress to take action in the following ways:

  • Expand Eligibility - Congress should make clear that all businesses of a certain size can qualify for MSLP. Currently, MSLP uses the Small Business Administration’s (SBA) 7(a) loan eligibility standards, even though this is not an SBA program. The SBA eligibility standards are problematic as they exclude business entities holding passive real estate.
  • Extend the MSLP - Given the mid-June start of the program, the MSLP application period should be extended until at least December 31, 2020 from the current September 30, 2020 deadline.
  • Modify Asset-Backed Underwriting Methodology - Lenders need flexibility to adjust the underwriting methodology based on the types of assets involved.  The group pointed out that MSLP limits a borrower’s maximum loan size to a multiple of its earnings before interest, taxes, depreciation and amortization (EBITDA), which even the Federal Reserve has acknowledged is not a standard underwriting metric for real estate or other asset-based businesses.  If the EBITDA test remains, the multiple needs to be increased substantially and we went on to recommend that other conventional metrics be used by lenders instead.
  • Additional Debt - Many CRE loans prohibit borrowers from taking additional debt. A better alternative to loan facilities for commercial property is preferred equity, which does not add to a property’s debt burden and keeps cash available to operate. Congress should allocate unused Title IV CARES Act funds and direct the Federal Reserve and Treasury to create a preferred equity program for CRE borrowers, as part of MSLP or as a separate facility.
  • Affiliation Rules - Borrowers should have flexibility within affiliated companies to ensure businesses are able to use the funds where they are needed.
  • Statutory Distributions - MSLP guidance should not conflict with existing Internal Revenue Code requirements that govern how Real Estate Investment Trusts (REIT) pay dividends to investors.

ICSC was joined in the letter by American Hotel and Lodging Association, Asian American Hotel Owners Association, Commercial Real Estate Finance Council, Latino Hotel Association, Mortgage Bankers Association, NAIOP, the Commercial Real Estate Development Association, National Association of Black Hotel Owners, Operators & Developers and The Real Estate Roundtable.