Fed provides lifeline with Main Street Loans for landlords
Brought to you by the Real Estate Recovery Team of McDonald Hopkins LLC
Unlike in the Great Recession, the Federal Reserve is giving commercial real estate owners a much-needed lifeline as some owners collected only 27% of retail rents and 73% of multifamily rents for April. On April 9, the Fed announced a $2.3 trillion initiative including the Main Street New Loan Facility and Main Street Expanded Loan Facility. The Main Street New Loan Facility program is for new loans to borrowers, and the Main Street Expanded Loan Facility program provides additional money for pre-existing loans.
The Fed’s Main Street loans are important to property owners because they don’t require collateral, personal guaranties, or a payroll that many real estate operators lack. Of course, loan regulations will need to be finalized before owners can confirm their eligibility, but what we know so far is:
To qualify your real estate company (such as developers or commercial landlords) cannot have over 10,000 employees or over $2.5 billion in revenue, and must be a U.S. entity with significant operations in and a majority of employees in the U.S. The loans will be originated by U.S. financial institutions.
Loan terms will be:
- Four-year loan maturity.
- Amortization of principal and interest deferred for one year.
- Adjustable interest rate based upon the Federal Reserve’s secured overnight financing rate (SOFR) plus 2.5-4%.
- Prepayment without penalty.
- Minimum loan size of $1 million.
- For the Main Street New Loan Facility program:
- Maximum loan size at the lesser of $25 million or an amount that, when added to existing outstanding and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA.
- Debt is completely unsecured.
- For the Main Street Extended Loan Facility program:
- The maximum increases in the loan facilities are the lesser of $150 million, 30% of the borrower’s existing outstanding and committed but undrawn bank debt, or an amount that, when added to the existing outstanding and committed but undrawn debt, does not exceed six six times the Borrower’s 2019 EBITDA.
- Debt may only be secured by collateral currently pledged under the original loan terms.
These loans appear tailored for the real estate community because the loan size is determined by EBITDA. Real estate companies have significant EBITDA even when they don’t have taxable income or employees. Further, with no new collateral, second mortgages or personal guarantees required, many will find the Main Street loans a source of unsecured bridge financing that was not readily available during the Great Recession.
Here is a look at what some of our attorneys are saying about the Main Street Loan programs:
David Hales | Co-chair McDonald Hopkins Real Estate Practice Group
“This loan appears tailored for the commercial property owner – no personal guaranty or collateral needed, and many property owners should qualify for it. This was much needed during the Great Recession as the Fed now recognizes.”
Patrick Karbowski | Member, McDonald Hopkins LLC
“While it was important to provide assistance to the small business sector through SBA PPP loans, those in the commercial real estate industry who did not qualify were no less in need of assistance. This program should provide much needed assistance to an equally important sector of the economy.”
Dana White | Member, McDonald Hopkins LLC
“With loan amounts tied to EBITDA rather than payroll, a larger maximum loan amount, and a longer loan term than its SBA PPP loan counterpart, the new Main Street New Loan Facility program should provide a much needed lifeline to many commercial real estate owners, operators and developers that could not avail themselves of the financial assistance provided to small businesses under the PPP loan program.”
The McDonald Hopkins Real Estate Recovery Team is keeping up to date on the rapidly developing opportunities for real estate owners during this difficult time. If your real estate is impacted by the massive dislocations caused by this economic shutdown, and would like to know how we can help you with the Main Street loans, or any other federal or state relief program, please reach out to any of the attorneys listed below:
