The Government Shutdown and Commercial Real Estate

Without assessing blame to either party, the fact is that for the first time since 1995, the federal government is not open for business.

Along with the 800,000 federal employees and a large number of private contractors to the federal government, the business sector is also in a world of hurt

Certainly, it is obvious that companies doing business with the government in many cases will have to stop delivering goods and services without a way to recoup their losses. However, firms that rely on government services are also suffering as all of Washington except essential service personnel are on furlough. Severely impacted by the closing of the government is the commercial real estate field. Often the services they use are not available in the private sector.

The federal court system closed for the most part during the shutdown including Bankruptcy court. This means that no real estate agreements that are a part of a bankruptcy will close as planned. This effects all parties involved in a deal, including the bankrupt borrower, the lender, and the new buyer acquiring the real estate asset. The negative effects can be much worse than just delay – the lender’s buyers may walk away as they choose not to wait for the resolution of the bankruptcy and there may not be a replacement buyer in the wings.

Government Shutdown CRE

Investors dealing with the federal government for the purchase or sale of property will see deals postponed for a long period. In commercial real estate delays can be deal breakers.

Rural areas will also suffer, as United States Department of Agriculture will not close any of their loans. Many of the USDA loans are for commercial purposes. The government shutdown will also slow or stop other commercial loans guaranteed, sponsored or subsidized by the federal government, bringing them to a breathtaking stop.

When congress takes action such as closing the government there are always unanticipated consequences, and they usually are not good. With the nation’s economic recovery still on wobbly legs, a continuing shut down will quickly go from mildly disruptive to commercial real estate to creating chaos as the first major deals fall through and important investors are hurt.

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