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Threats of Terrorism Can Impact Commercial Real Estate

Not a day goes by that the front page of every newspaper across the country features a story involving an act of terrorism somewhere. The same sad story seems to hold true for television news too. Fortunately for us, the violence is rarely at our doorstep but the worldwide threat of terrorism does impact commercial real estate in our country. Ever since that dreadful day in September 2001, the risk of another calamitous attack on US soil has severely limited the availability of affordable casualty insurance for owners of commercial property. The federal government, recognizing the seriousness of the problem for real estate owners, investors and policy holders, enacted the Terrorism Risk Insurance Act (TRIA) to act as a backstop for property insures in the event of future terrorist attacks. The legislation has been renewed twice and requires reauthorization again by December 31, 2014. In the past, reauthorization was easily passed on a voice vote by both houses of Congress. But, this time the renewal legislation has been trapped in the politically polarized Congress, much to the chagrin of insurers and the insured.

Failure to extend the program would affect virtually every property owner or business in major US cities that must carry terrorism insurance. Non renewal of this program would most certainly cause insurers to reevaluate risks associated with providing casualty coverage for real estate in many markets. Higher risk exposure for insurers will translate into higher premiums or, in the worst case, the complete withdrawal of insurers from many high risk markets.

To make matters worse for commercial real estate owners and investors, the non renewal of the TRIA program may trigger technical defaults by borrows causing serious problems for the banking system and bondholders. Further, without reauthorization, investors and property owners will most certainly find it harder to acquire project financing or re-financing in many markets, which in turn, translates into a stifling of job growth. Terrorist attacks on foreign soil do indeed impact the US commercial real estate.

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