Commercial Servicer: Insurance Coverage for Terrorism May Be on the Way.(Brief Article)(Statistical Data Included)

The invisible hand of the market is at work developing a market equilibrium for terrorism insurance, but it may not be up to the task in this instance due to special considerations of national security and the threat of significant economic dislocation. And although market forces have made the insurance available, it is not readily available and where available, it is only available at a steep premium and for limited time periods. Thus, although several high-profile commercial real estate deals have gone through this year - including some involving trophy properties in major metropolitan areas, the sort that are deemed to be most at risk for terrorist attacks - there still remains a need for the government to step into the picture. Thanks to President Bush's recent call for action by the Senate, legislation to create a federal backstop for terrorism insurance appears more imminent.

Some major real estate investment trusts have been able to use their size to advantage in negotiating terrorism insurance coverage. One such recent transaction involves SL Green, a New York-based office REIT. The REIT has acquired a Midtown Manhattan property in the heart of Times Square - in a joint venture with SITQ Immobilier, a Canadian real estate investor - in a transaction valued at approximately $480 million.

Michael Reid, SL Green's chief operating officer, said that they were able to put in place a "wide range of terrorism coverage" for the property, covering all sorts of risks, including bioterrorism. The coverage - to the tune of several hundred million dollars - was obtained from multiple carriers and was made possible through a "worldwide marketing effort" undertaken by the REIT. According to Mr. Reid, the process of obtaining the coverage was "very difficult and ...