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NEW YORK CITY-There is no doubt that the destruction of the World Trade Center on Sept. 11 will forever alter the way buildings are designed and constructed. But less obvious and equally important changes are in store for developers attempting to finance projects now that insurance companies are indicating that terrorism coverage may be severely curtailed if not eliminated completely.

“In the system as we know it now, if you can’t get terrorism insurance, you can’t build buildings,” says Raymond T. O’Keefe, co-chairperson of the Real Estate Board of New York’s Economic Development Committee and a regional managing director at Grubb & Ellis. “People are saying this could bring construction to a halt. There could be a tremendous block in real estate activity.”

According to O’Keefe, a scenario in which insurers refuse to provide terrorism coverage “will be a real problem, because in order to build buildings you have to secure financing and in order to secure financing you have to have insurance.” Potential remedies, he says, include “new entities stepping up that would be willing to give additional insurance coverage to fill in the gap not filled by regular insurance carriers.” Another possibility is that “financial institutions will be willing to lend without that coverage but will require higher rates. In either case, it increases the cost of the building.”

And who will absorb those costs? O’Keefe says developers will structure higher insurance and financing costs into rents, which will require tenants to charge more for goods and services. “It all gets passed onto consumers at the end of the day.”

One possible solution is a federal program to subsidize terrorism coverage, an idea that O’Keefe says is sure to be hotly debated. “I think the government could step in. But then all citizens of the US are paying for insurance,” he says. “That’s a public policy decision, whether it’s a proper use of public money. You can argue both sides, but there is precedent for that kind of thing.”

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