The Mortgage Bankers Association of America (MBA) has released data indicating that as much as $26 billion in fourth-quarter 2001 commercial real estate financing is at risk without federal government support in obtaining property and casualty insurance against future terrorist attacks. This MBA estimate does not include loans originated by commercial banks that comprise 40% to 50% of the market.
"Without terrorism insurance coverage, commercial lenders will be forced to either delay or prevent real estate projects from going forward. That could include everything from financing, buying or selling a shopping center to constructing a new office or apartment building," said James Murphy, MBA chairman. He said the group is asking Congress to consider the real estate industry’s contribution to the national economy by supporting terrorism insurance subsidized by the federal government.
The real estate industry accounts for 12% of the U.S. Gross Domestic Product and employs nearly 8.5 million people, including construction jobs. The commercial real estate debt totals approximately $1.6 trillion.
Prior to Sept. 11, the real estate industry projected commercial real estate mortgage activity for 2001 to reach $113 billion. This estimate includes mortgages provided by the commercial mortgage back securities (CMBS), life insurance companies and government sponsored enterprises, such as Fannie Mae and Freddie Mac.
Insurance concerns have already resulted in the curtailment of new issuance in the CMBS market and the secondary trading of these securities. Preceding the attacks, the CMBS industry was heading for a near-record year of approximately $80 to $85 billion of issuance. It had already issued $58.5 billion, or about $7.3 billion monthly.
On Sept. 18, it was reported that 26 real estate deals totaling $22.8 billion were projected to price by year-end. However, CMBS issuance levels over the last six weeks are reported to have reached $3.8 billion, which represents a severe reduction in CMBS market activity. In addition, secondary trading of CMBS has yet to resume its normal level due to continued erratic markets.
"In these uncertain times, we do not need uncertainty in terrorism insurance," said Rodrigo Lopez, Chairman of MBA’s Commercial Real Estate/Multifamily Finance Board of Governors Legislative Committee. "What we need immediately is meaningful and equitable legislation that addresses the insurance problems that the real estate industry now faces."