Unlike previous SBA programs, companies that applied for the loans didn’t have to prove that they tried and failed to get money elsewhere, attorneys say. The skyline of lower Manhattan on April 21.
Photo: angela weiss/Agence France-Presse/Getty ImagesReal-estate companies are cashing in on the government’s emergency-spending program, despite rules meant to bar landlords and other property owners from the funds.
Congress created the Paycheck Protection Program to help smaller companies keep workers on payroll during the coronavirus pandemic, but not so-called passive businesses that collect rent and businesses that profit primarily off of price speculation. The Small Business Administration specifically excluded 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. 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.
This means 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.
Time Equities Inc., which controls more than 30 million square feet of real estate, is one recipient. The New York City-based property investor and developer received $3.6 million in PPP loans, the company’s chief executive, Francis Greenburger, said.
Aside from some small stakes, the company doesn’t directly own any buildings. Properties are held by separate special-purpose entities that Mr. Greenburger controls with other investors, making Time Equities eligible for these loans.
Time Equities designs, builds, leases and manages the buildings for a fee, and also provides services like real-estate brokerage and construction management to third parties.
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.
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Trion Properties, a privately held California property manager and developer that oversees roughly 1,300 apartments on the West Coast, also through business entities obtained PPP loans of around $765,000, according to co-founder Max Sharkansky.
Mr. Sharkansky said his company needed the funds. While most of his tenants have paid their rent, Trion depends on revenue from other sources, such as selling buildings and refinancing existing holdings, which have all but dried up.
“We’re not on such a huge scale where we can survive strictly based on operations,” Mr. Sharkanksy said.
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. 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.
“Unfortunately…the real-estate sector getting money from a program meant for actual small businesses isn’t an anomaly,” said R.J. Cross, a tax and budget policy advocate for the liberal U.S. Public Interest Research Group. “It’s more evidence that the Treasury and related programs in the Federal Reserve need more oversight.”
Unlike previous SBA programs, companies that applied for the loans didn’t have to prove that they tried and failed to get money elsewhere, attorneys say.
The SBA declined to comment. The Treasury department didn’t respond to requests for comment.
Some real-estate firms have returned the funds after political or public pressure. They followed the lead of a number of publicly traded companies, which repaid their loans after the Treasury Department updated guidance to say that large companies with access to capital markets shouldn’t be eligible.
Veritas Investments, which manages $3 billion in real estate and is one of San Francisco’s largest landlords, received $3.6 million from PPP, the company said. The firm obtained the funds through a management entity that is separate from the pooled investment funds that own its buildings.
House Speaker Nancy Pelosi (D., Calif.), whose district covers parts of San Francisco, has called on Veritas to return the money. “Larger companies like Veritas…which has billions in assets and access to liquidity through other sources, were not the intended beneficiaries of PPP loans,” she said in a statement.
Veritas has said it would eventually pay back the loan amount, instead of applying for loan forgiveness from the SBA.
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. 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.
But now, real-estate trade groups are lobbying Congress and the SBA to allow multifamily real-estate companies to qualify for the loans. They argue that building workers are essential employees, regardless of whether they are employed by a landlord or by a separate property manager.
Write to Will Parker at will.parker@wsj.com and Konrad Putzier at konrad.putzier@wsj.com
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