It will never be the same again.
As in virtually all other facets of life, the terrorist attacks that swept over the United States in September 2001 have inextricably changed the landscape of commercial real estate forever. From multifamily to shopping centers to hotels to office buildings, owners today must balance public access with security, finance additional safeguards through insurance and increased staffing, and keep abreast of new technologies and trends that might impact the operation of a given asset.
One example of the changes can be found right in Boston at 100 Federal St., where owner/chief tenant Fleet Bank has installed an elaborate security system and created a formidable staff presence to control access to the 44-story tower. Once considered among the Financial District’s most active “cut-through” buildings for non-tenants, 100 Federal St. now more closely resembles the ultra-secure Federal Reserve building a few doors down, than the pedestrian-friendly facility which once saw thousands of people traverse the lobby daily.
“You literally cannot walk through that building anymore without [encountering] a guard,” acknowledged Boston property management veteran Dennis Callahan. “There has been a real change there.”
As a property manager who has handled some of the city’s top office buildings, Callahan has seen a marked change in the way security is treated since Sept. 11. Once part of the overall menu on a property manager’s plate, security has now taken a dominant place in the list of day-to-day responsibilities. Given the intricacy of the task, property managers are increasingly turning to security consultants to help weigh the various options now available to control building access, Callahan said.
“We need to look for professional assistance,” said Callahan, who most recently has overseen property management duties for Insignia/ESG. “This is a [complicated] area whereas the typical property manager is a jack of all trades and master of none.”
One critical issue is to balance security with the needs of lobby retail tenants, many of whom were cut off from the outside world in the wake of the terrorist incidents. Lobby shops, shoeshine operators and other in-house vendors were devastated at the outset of the crisis, but Callahan said he believes most landlords have worked diligently with those tenants to improve access, helping keep the lobby revenue stream flowing. At 10/Ten Post Office Square in Boston’s Financial District, Insignia/ESG chose to focus on controlling elevator access rather than the lobby itself. The same is true at other buildings as well, including Boston’s twin-tower 125 High St., where visitors are free to go through and even linger within the project’s dramatic atrium lobby.
Beyond the physical transformations mandated by Sept. 11, building owners are also trying to grapple with the fiscal complications, and perhaps no area has been more impacted in that regard than terrorism insurance coverage. Once a matter of little discussion when writing a policy, coverage for terrorism claims became so disrupted that the federal government had to finally step in when commercial property owners suddenly found such options were either non-existent or so overpriced as to be unaffordable.
The dilemma also led to creation of the Coalition to Insure Against Terrorism, a Washington, D.C.-based organization representing a wide array of real estate and business groups. Among the members are the National Association of Realtors, the National Retail Federation, the Institute of Real Estate Management and the Associated Builders and Contractors.
The biggest coup for CIAT was last autumn’s passage of a federal backstop for terrorism claims, giving insurers insurance against catastrophic losses in the event of a major attack. But while that legislation proved a major victory for property owners, CIAT spokesman Martin L. DePoy explained last week that the group is still active, largely in helping the federal government promulgate rules for the new bill, and also monitoring insurers to determine whether they are following the spirit of the law.
“We’re really here to look out for the interests of the policyholders,” said DePoy, also an official with a CIAT member, the National Association of Real Estate Investment Trusts. DePoy said CIAT has been disappointed in some interpretations by the government on who should be required to carry terrorism coverage, and is now concerned that some insurers are trying to limit their coverage, with potential exclusions for such areas as biohazards and radiological attacks. According to the legislation, insurers would be required to provide such coverage if they did so prior to Sept. 11.
Further complicating the situation is the control state insurance commissioners have over certain parts of the bill, with the potential for one state to have regulations not seen in other jurisdictions. Overall, DePoy said he is generally pleased with the results of last year’s legislation, but said there could be room for improvement. “Clearly, what we’ve been able to determine is that terrorism insurance coverage is more widely available than it was before,” he said. “But the price of terrorism insurance varies widely right now.”
