Richard B. Ashworth
‘Not affected’
It remains a major concern nationally for the commercial real estate industry, but thus far, the lack of terrorism insurance does not appear to be particularly worrisome to local building owners and lending professionals.
“We do not see it impacting our world a whole lot,” mortgage broker Richard B. Ashworth of Ashworth Mortgage Co. in Newton told Banker & Tradesman last week. “We haven’t had anything held up because of it.”
The same is true for Fantini & Gorga/iCap Realty Advisors, said George J. Fantini Jr. He recalled substantial discussion regarding terrorism insurance soon after Sept. 11, but added that such talk has waned considerably since that time, at least in Greater Boston real estate circles.
“It hasn’t really come across my desk,” said Fantini. “It just doesn’t get talked about a great deal.”
The terrorist attacks have generated dramatic changes in insurance policies for buildings, with many carriers either refusing to include coverage for acts of terrorism or charging prohibitively high rates. In some instances where policies have expired, property owners unable to obtain new coverage have found themselves technically in default of existing loan agreements, while those seeking loans for new deals have also been rebuffed in their efforts to secure insurance.
The situation is considered so onerous that several industry trade groups have rallied to form the Coalition to Insure Against Terrorism. The group has been actively lobbying Congress in recent months in hopes of winning support for a federal insurance program to help pay for terrorist damages, with proponents predicting that the investment market for commercial real estate sales could be severely compromised if backing does not materialize.
Advocates of the legislative package won support from the House last November, but the initiative has stalled in the Senate since the start of 2002. International Council of Shopping Centers spokesman Wayne A. Mehlman attributes the roadblock to controversial tort reform measures also thrown into the legislation rather than simple unwillingness in Congress to support the terrorism insurance safety net.
Mehlman said he believes some politicians also wavered against the legislation because they felt it was being driven primarily by the insurance industry. That is not the case, Mehlman insisted, maintaining that “it really is a policyholder’s problem.” Reflecting that notion, CIAT includes members such as the National Multi-Family Council, the National Association of Realtors, the Building Owners and Managers Association International and the Institute of Real Estate Management.
“It’s a problem for a lot of people,” said Mehlman. “And as policies roll over in the coming months, more and more of our members will be affected.”
Legislative Priority
The biggest impact has been on high-profile, trophy assets that would be considered a prime target of terrorism. Most observers agree that the importance of coverage against such incidents is diluted when one begins dealing with smaller buildings or those located in less-populated markets. Simon Property Group had a difficult time obtaining coverage for its massive Mall of America in Minnesota, for example, eventually only gaining partial coverage at significantly higher rates than previously required. On the flip side, Spaulding & Slye Colliers retail investment specialist James Koury said last week that the coverage dilemma has not affected efforts to sell several grocery-anchored centers and strip centers that his firm has handled throughout New England since Sept. 11.
“We have not run into it,” said Koury. “It’s a major issue [nationally], but it has not been on our radar screen at all.”
In his observations, Ashworth said lenders do routinely ask for terrorism coverage, but will accept a restricted policy if the coverage is unattainable. Much of Ashworth’s activity of late has been concentrated in financing suburban office properties, he said, buildings that would not be of particular interest to a terrorist organization. “It has not affected us yet,” he said.
New York City appears to have borne the brunt of the terrorism insurance deficit, while the market for single-asset securitizations has also been disrupted. Fantini & Gorga’s prime business at present is concentrated in loans of $2 million to $25 million, Fantini said. The real estate involved in such transactions tends to be suburban, non-trophy quality.
Competition among lenders is another factor, said Fantini, who predicted that it will be difficult for one entity to require coverage if other companies do not follow suit. “There’s a lot of competition for good quality loans right now, and you cannot be a player if you’re asking for something that nobody else is,” Fantini said.
Fantini also said he believes the initial reaction to the terrorism situation has mellowed somewhat, putting the insurance debate on the back burner for the time being. Still, Mehlman said ICSC and the CIAT membership remains concerned that a legislative solution is needed, adding that it is “on top of our list” of legislative priorities for 2002. Supporters of such an approach are expected to receive a boost this week when President Bush reportedly will come out in favor of legislative relief, although Mehlman said the Senate appears to be a leading stumbling block to getting a bill passed.
