Protecting Your Real Estate Portfolio During a Shutdown

The federal government officially shut down on Oct. 1, stopping nonessential operations and leaving many federal workers without pay. While headlines often focus on the political battles, the ripple effects go far beyond Washington, D.C. – directly affecting the real estate market.

Even short-term shutdowns can disrupt investors, developers, and property managers nationwide. From delayed financing and stalled approvals to rental instability and rising uncertainty, these effects can slow transactions, strain cash flow, and heighten market risk. Although temporary, shutdowns can create immediate challenges, making proactive planning crucial to safeguard your portfolio.

Delays for Government-Backed Mortgages

Government-backed loans, such as FHA and VA programs, typically continue during a shutdown. However, reduced staffing can slow processing times, causing delays in new applications or loan approvals. USDA loans are more vulnerable, as the department often halts issuing new direct and guaranteed loans during a shutdown, leaving closings up to the lender’s discretion.

Verification processes through the IRS or Social Security Administration may also experience delays, which can affect income and tax validation needed for many loans. Investors and developers in federally dependent metros, including areas with major government offices or contractor centers, might see significant impacts.

Protect Your Portfolio:

• Begin financing process early and verify timelines with lenders.
• Explore conventional loan options or private financing to reduce reliance on government-backed programs.
• Communicate proactively with lenders to anticipate verification delays.

Flood Insurance Disruptions

The National Flood Insurance Program (NFIP) can’t issue or renew policies during a shutdown. For properties in flood-prone areas, this can delay sales and development projects that require proof of coverage. Existing NFIP policies generally remain active, but extended disruptions raise concerns about funding for claims. Private flood insurance is still available, but gaps in federal coverage create market uncertainty, especially as hurricane season continues and flood risks remain high.

Protect Your Portfolio:

• Review your flood insurance coverages and verify that the limits are sufficient.
• Explore private flood insurance options to fill coverage gaps.
• Check if your properties have business interruption insurance, review policy coverage, and document potential losses to file claims once impacts are measurable.
• Avoid scheduling closings that rely solely on NFIP approval.

Rising Market Uncertainty for Investors

Shutdowns create economic and political uncertainty that can influence rental demand, tenant stability, and investor confidence. Areas with high concentrations of federal employees, such as Washington, D.C., Kansas City, and Philadelphia, might see delays in lease renewals or higher rental vacancies. Tenants who rely on government income or contracts, including federal agencies leasing private office or retail space, may face temporary cash flow disruptions, potentially delaying rent payments. Limited economic data from postponed reports by the Bureau of Labor Statistics or the Census Bureau further complicates data-driven portfolio decisions.

Protect Your Portfolio:

• Stress-test cash flow and rental income for potential disruptions, including delayed payments from federal tenants.
• Diversify tenant base and geographic exposure to avoid concentrated risk.
• Monitor local economic indicators (e.g., vacancy rates, lease renewals, construction activity) to make informed investment decisions.
• Proactively communicate with tenants, lenders, and partners to set expectations and build trust.

Financing, Transactions, and Development

Shutdown-related delays often impact financing and investment activities. While Fannie Mae and Freddie Mac continue to process conventional loans, verification slowdowns through other agencies may create bottlenecks. Prolonged shutdowns could also damage the government’s credit rating, leading to higher interest rates and increased risks for refinancing strategies.

Investors in affordable or multifamily housing supported by HUD programs might face payment delays, further straining cash flow. Construction projects reliant on federal permits, inspections, or funding can experience delays, especially in metropolitan areas with significant federal involvement. Appraisals, title work, and closing procedures may take longer, which can impact acquisitions or sales.

Protect Your Portfolio:

• Incorporate flexibility into acquisition and construction schedules.
• Arrange alternative financing options like bridge loans or revolving credit lines to keep liquidity steady.
• Review debt exposure and refinancing timelines to foresee possible interest rate fluctuations.
• Develop backup plans for projects dependent on federal approvals or funding.

What the Real Estate Market Can Do Now

While shutdowns are beyond an investor’s control, consider these measures to lower your exposure.

• Diversify funding sources to lessen dependence on government-backed loans.
• Secure insurance coverage ahead of time to avoid gaps.
• Stress-test cash flow for possible rent or funding delays.
• Incorporate flexibility into project timelines and construction schedules.
• Maintain open communication with tenants, partners, and lenders to effectively manage expectations.
• Monitor market data, including rental rates, vacancy, and construction starts, to support data-driven decisions.

Safeguard Your Investments

While the duration of the current government shutdown remains unclear, the risks can start immediately. Our advisors can assess your overall risks and develop a comprehensive plan to navigate the government shutdown, regardless of its timeline or length. CBIZ real estate team offers integrated solutions – including accounting, tax, advisory, benefits, insurance, and technology – to address all significant risks and help safeguard your portfolio and operations. Contact a member of our team today to review your risks and create a tailored strategy for your investments.