The Impact US Government Shutdown Has on Real Estate

The White House and Republican and Democratic congressional leaders failed to reach an agreement to extend government funding, resulting in a shutdown of most federal government functions on Oct. 1.

It is unclear how long the shutdown will remain in effect. In most cases, the short-run impacts will be minor. A long-run shutdown, lasting several weeks or a month or more, could have significant impacts on mortgage accessibility and reduce housing demand.

National Flood Insurance ProgramOf immediate concern is the effect on the National Flood Insurance Program (NFIP): The authority to provide new flood insurance contracts is expired for the duration of the government shutdown. This will delay all new home sales or insurance renewals for property owners with federally-backed mortgages who lie in a Special Flood Hazard Area.

Department of Housing and Urban Development

• FHA-insured single-family loans will continue to be endorsed in the near term, although some delays in processing and closing should be expected.

• FHA multifamily insured projects with firm commitments and scheduled closings may go forward, although no new firm commitments will be issued.

• HUD will make payments under previously obligated Section 8 contracts, Section 236 agreements, Section 202 and 811 Project Rental Assistance Contracts (PRAC), and Section 811 Project Rental Assistance (PRA).

• HUD will continue to process rental subsidy contract renewals to the extent that there is budget authority available from prior appropriations or recaptures.

Department of Agriculture

• Most rural development programs will not continue without appropriation.

• The Section 521 Rental Assistance Program payments from obligations before the lapse will continue.

• No new rural housing loans, grants or loan guarantees will be committed during a shutdown. For Section 502 guaranteed loans only, lenders and borrowers can choose to proceed with closing if USDA has already issued a valid conditional commitment.

• The ENERGY STAR program is shut down until further notice, and the processing of all partner applications and partner inquiries is on hold. Updates to Energy Star qualified product lists and release of draft ENERGY STAR specifications will also be delayed.

Impact to commercial real estate, while not quite as immediate, is much more far-reaching. A government shutdown delays government data on the economy. It causes uncertainty in the financial markets and, consequently, commercial real estate dealmaking, especially for small businesses. It also hits investor confidence. Finally, but most immediately, it causes a pullback in consumer demand for certain sectors.

potential ramifications include:

• Reduced demand for CRE as businesses and government agencies delay or cancel leasing and development projects.

• Greater difficulty for CRE investors and developers to obtain financing and conduct transactions amid uncertainty and market volatility.

• Delayed approvals of permits or other government sign-offs necessary for CRE development projects.

  The federal commercial real estate market will take the hardest hit, as sales of those properties, which are managed by the General Services Administration (GSA), will either be delayed or stopped. Federal contracts, including new leases and property maintenance agreements with tenants, will also have to wait.