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How The Government Shutdown Is Affecting CRE

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The U.S. government shutdown is on track to become the longest ever, with President Donald Trump walking out of White House talks with congressional leaders Wednesday as negotiations broke down over funding for a border wall.

“I think this is going to drag on a lot longer,” acting chief of staff Mick Mulvaney told Meet the Press.

If that proves true, it could affect various commercial real estate sectors, including office, multifamily and retail. Here are some government agencies and government-sponsored entities whose involvement in commercial real estate is at risk during the shutdown:

GSA

The General Services Administration, a government organization that helps manage and support the basic functioning of federal agencies, leases work space for more than 1.2 million federal workers at over 700 locations across the U.S. and its territories.

It also has 23 leases under consideration for 2019. The GSA’s top locations are metro Washington D.C., with more than 51 million square feet; Kansas City, with about 9 million square feet; the New York City metro area, with about 6 million square feet; the Atlanta area, with nearly 6 million square feet; and metro Philadelphia with over 5 million square feet.

GSEs

Fannie Mae and Freddie Mac are operating more or less as usual, though both GSEs have publicized loan purchase requirements during a shutdown. Freddie Mac and Fannie Mae borrowers must sign a 4506-T request for the transcript of a tax return from the IRS, but it does not have to be processed prior to close. Fannie Mae has said borrowers may instead have their income verified through the agency’s own verification system, and has issued guidelines explaining how federal employees may continue to be eligible for mortgages during the shutdown.

HUD/FHA

HUD continues to process single-family loans and FHA will maintain operational activities. However, the government is not making new commitment on multifamily loans.

“Right now, there’s a housing shortage for owner occupancy and rental, so if there’s a delay in approving some of the multifamily projects, that is not good news,” National Association of Realtors Chief Economist Lawrence Yun told Bisnow.

SBA

Meanwhile, the Small Business Administration has said it would be inactive during the shutdown, so businesses that are relying on loans from the agency or those dependent on government contracts may find it difficult to stay afloat. If they were to close, the owners of the retail/office/industrial properties they occupy may find themselves facing unexpected vacancies.

Then there’s retail. After racking up holiday sales of more than $850 billion, the best in six years, the blues may return to the battered sector as the 800,000 federal workers in financial limbo cut back on their spending.

A prolonged shutdown may affect both the economy and commercial real estate in the medium- to long-term. The White House Council of Economic Advisers expects U.S. economic output to be trimmed by about 0.1% for every two weeks the government remains closed.

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