Thursday, December 27, 2007

President Bush Authorizes Extention of Terrorism Risk Insurance Program

Good news out of Washington DC for a change. The commercial real estate market and the health of the nation’s economy as a whole will benefit from the reauthorization of the federal government’s terrorism risk insurance program, which President George W. Bush signed into law.

In a story in National Realty News, The National Association of Realtors took credit for long advocating passage of the Terrorism Risk Insurance Revision Extension Act to maintain a strong commercial market. And you know what? This extention is a very good thing for investors.

"As the leading advocate for real estate issues, NAR commends President Bush and Congress for enacting the federal terrorism insurance backstop," said NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. "We especially thank Rep. Barney Frank (D-Mass.) and Sen. Christopher Dodd (D-Conn.), the chairmen of the House and Senate banking committees, for their leadership in guiding H.R. 2761 to passage. The potential unavailability of terrorism risk insurance would have had a devastating impact on many commercial financing agreements and could have negatively affected the commercial real estate market."

Simply put, the terrorism insurance program, initiated after the September 11, 2001, terrorist attacks, has helped stabilize the commercial real estate industry. The new law, NRN reports, will extend the program for seven years, covers both foreign and domestic acts of terrorism, retains the "trigger level" at $100 million of damages at which point federal assistance kicks in, and establishes a blue ribbon commission tasked with recommending a long-term private market solution.

"TRIA reauthorization will strengthen the economic security of the commercial real estate market by reducing the uncertainty of terrorism coverage availability and by covering many forms of terrorist activity," Gaylord said.

In the long term, many in our industry feel the best solution should focus on what private markets have been unwilling or unable to do. Gaylord, commenting on this very issue, has strongly urged a process be created whereby businesses (investors) may purchase insurance for the most catastrophic conventional terrorism risks; provide adequate insurance capacity in all major commercial real estate markets, particularly in high-risk urban areas; and provide meaningful insurance against all types of terrorism risks. Gaylord says this extention does just that.

I'm not so sure, but I'm not in favor of government intervention to a large degree. The markets should arrive with tools that address these needs. In time, they will.

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