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NORTH
AMERICA
NEWS STORY
North American office property owners
were dealt a blow yesterday, with news the largest U.S. lender is giving
borrowers two weeks to come up with terrorism insurance or risk being in
default.
General Motors Corp.'s commercial
mortgage servicing unit, which oversees US$100-billion of loans on office
buildings, shopping malls and other properties, sent letters to borrowers
saying it can declare loans in default or force landlords to pay whatever
premium GMAC can arrange.
The policy has created a conflict with
one of the largest Canadian real estate companies. Toronto-based Brookfield
Properties Corp., which has extensive holdings in New York including parts
of the World Financial Center, is suing GMAC over a US $2.1-million bill it
was sent .
GMAC sent Brookfield the bill for a
terrorism insurance policy GMAC bought for a building the real estate
company owns at 245 Park Avenue in New York. GMAC services the tower's
US$500 million mortgage.
GMAC bought US$150-million of terrorism
coverage for the 44-story tower near Grand Central Terminal. Brookfield has
said GMAC's move undercuts its bargaining position with insurers.
Brookfield officials would not comment
yesterday, saying it is before the courts. Brookfield, whose properties near
the World Trade Center were damaged during the Sept. 11 attacks, became one
of the first companies forced to renew its terrorism coverage following the
incident
In a conference call with analysts in
November, Brookfield said the company has new business interruption and
property insurance but only liability risk insurance for terrorism. It has
been pushing, with others, for a government supported terrorism risk
program.
In the wake of Sept. 11, landlords are
finding it more difficult and expensive to find terrorism insurance.
Pressure has been building on U.S. legislators to come up with a solution to
ease the burden of property owners.
The U.S. Senate began debate Thursday on
a bill to provide a backstop to large insurance claims from future terrorist
attacks.
"By doing this GMAC is adding fuel
to the fire of necessity to get some action out of Congress quickly,"
said Deborah Beck, executive vice president of the Real Estate Board of New
York, a trade group.
Since Sept. 11, many in the insurance
industry have refused to include terrorism insurance under all-risk
policies, forcing property owners to purchase the coverage separately. The
attacks on the World Trade Center and Pentagon caused US$35-billion damage.
Ross Moore, national research director
for Colliers International in Boston, doesn't see the issue going away soon
but he also doesn't see any immediate action from Congress.
"It just keeps going back and
forth. It's like watching a tennis match," said Mr. Moore, adding it's
really only an issue for owners with building in select markets. "If
you have shopping mall in Fort Wayne, Ind. it's one thing. If you have Class
A building in Manhattan, it's another."
- National
Post 20 June 2002
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