As liaisons between operators and owners, hotel asset managers must oversee each step of the Paycheck Protection Program process.
In addition to finalizing budgets, an additional responsibility has been added onto the plates of asset managers: the coordination and submission of forgiveness of Payroll Protection Program (PPP) loans.
With the 24-week qualifying period ending, businesses are utilizing a multifaceted approach with engagement from the property, the management’s payroll provider and ownership accounting, finance, treasury and legal, all quarterbacked and organized through asset management.
The PPP loan was designed to provide a direct source of capital to struggling businesses and an incentive for these organizations to keep workers on the payroll. One of the main features of the loan is the SBA forgiving loans if specific employee-retention criteria are met and the funds are used for eligible expenses.
Minimum 60% payroll spending: At minimum, 60% of any amount submitted for forgiveness must be spent on qualified payroll. Given the multiple classifications of spending, an asset manager should confirm any final calculations. Suppose a borrower was able to secure a $100,000 PPP loan. Of that, $55,000 was spent on qualified payroll and $45,000 was attributed to other qualifying amounts, such as debt service and utilities. Although all the spending was attributed to qualified reasons, the total amount eligible for forgiveness would be $91,667 (or qualified payroll equal to $55,000 or 60% of the forgiveness amount and $36,667 or 40% of the forgiveness amount due to other qualified spending).
Qualified payroll: To maximize payroll amounts, asset managers should refamiliarize themselves with payroll and benefit reporting to count the payouts of accrued vacations, earned bonuses and other separation amounts. Similarly, it should not be forgotten to count health benefits including medical, dental, vision and applicable disability insurance for those employed, but also for those employees furloughed and not receiving any salary or wage.
Full-time employee (FTE) safe harbor: The SBA inserted a provision of the PPP loan to retain or bring back as many FTEs on the payroll as possible so to not furlough or lay associates off. Hotel borrowers should note the ability to claim a safe harbor exception for the inability to return to the same business levels due to compliance with federal mandates from the Secretary of Health and Human Services, CDC or OSHA. In general, local stay-at-home orders and dining restrictions reference these guidelines from the federal agencies. Asset management should pull all local ordinances, ensure a reference to a federal directive and coordinate the tracking and justification of the FTE safe harbor. Although justification and qualification are not required for the forgiveness application, the information should be ready in case of audit.
Documenting other qualified spending: Given the multiple qualifying types of “other” spending, keeping things as simple as possible for the lender will only help in the forgiveness process. Asset management should collect, organize and label these amounts. Mortgage interest payments are a qualified amount and can encompass a large portion of the 40% of “other qualified spending.” Separating checks or online payments covering multiple invoices and showing the outflow of money through canceled checks or bank statements should ultimately allow the SBA to quickly track and approve these amounts.
Now that the PPP loans are moving into the next phase, asset managers will maintain their role as liaison between the operating entity and property entity to ensure the loan is forgiven and assist in the organizational cash management of the property. The second U.S. stimulus package has been approved, with another round of PPP lending on the way, giving hotels the best chance at surviving until travel regains some sense of “normalcy.”
Darryl Law is an asset manager overseeing hotel assets for public REITs, private equity and lenders.
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