Washington Insider - With no Terror Insurance, We Must Keep Pressure on Congress

The race is on. Congress is back in session after its August recess, with lots to do but little time in which to do it before the campaign trail calls.

A major homeland security reorganization, terrorism insurance, pending negotiations on bankruptcy and energy reform and must-pass appropriations legislation are among the big-ticket items on lawmakers’ agendas, all against a backdrop of possible military action in Iraq. With Congress scheduled to adjourn early next month, and all that’s at stake in the November elections, keeping lawmakers focused on terrorism insurance will be real estate’s most important task in the days and weeks ahead.

The need for a federal backstop on terrorism insurance coverage is moreimportant than ever. Such legislation will help ensure that owners of office buildings, shopping centers, sports stadiums and public infrastructures such as bridges and tunnels can obtain the coverage they need to operate. Such legislation will help protect building owners against potentially catastrophic losses in the event of another terrorist attack, which our government tells us is a matter of when, not if.

As Roundtable board member Penny Pritzker of the Pritzker Realty Group stated at the President’s economic forum in Waco, TX last month, terrorism insurance legislation will not only help protect the US economy from further job losses and liquidity problems in the nation’s commercial real estate sector but it will also protect the equity of thousands of Americans who invest in real estate through pension and stock funds.

“Some think of this problem as affecting only tall buildings in bigcities,” she stated, but “most of the equity invested in these so-called high-profile properties comes from the literally thousands of individual investors and pensioners that comprise the nation’s pension funds and real estate investment trusts.”

After the many fits and starts on this issue, we’re pleased that terrorism insurance legislation has advanced to the conference committee stage, and encouraged by the strong support on and off Capitol Hill for a federal solution to this issue. President Bush has warned repeatedly that inaction is costing the nation billions of dollars in stalled or cancelled real estate projects and idling thousands of construction workers.

However, enactment of a terrorism insurance bill is by no means assured. House and Senate conferees face the task of trying to meld two very different approaches to the same issue. For example, HR 3210, which cleared the House late last year, requires the insurance industry to repay a portion of any federal assistance it receives as a result of an act of terrorism. The version that cleared the Senate in June (S. 2600) would not require repayment.

There are also important differences in how the two measures define aterrorist act, the length of the program, and the threshold at which federal involvement is triggered. Also, provisions in the House bill dealing with litigation management (or tort reform) will likely require extended consideration by the conferees and are the primary hurdle that must be overcome before the measure can go to the President for his signature.

There are several other matters pending in Congress that, reflect on building safety and security. If acted on this fall, these issues would have important implications for real estate. One issue with obvious implications for our industry is potential federal involvement in building safety matters. Legislation approved by the House and pending in the Senate would expand federal investigative authority over major building disasters, in hopes that information obtained in such investigations could improve building safety and conditions for emergency personnel conducting rescue operations in affected buildings.

Meanwhile, Congress continues to work on President Bush’s proposed consolidation of federal security operations under a Cabinet-level Department of Homeland Security. The President’s strategic blueprint for this legislation, the National Strategy for Homeland Security, recommends cultivating public-private partnerships and existing market forces to aid in the nation’s defenses against terrorism, and explicitly names real estate as an industry already motivated by market forces to protect its assets.

The Real Estate Roundtable and national real estate trade groups continue to work with the Office of Homeland Security and other federal agencies to help shape policy in this area. Just last month, roundtable members participated in a federal workshop on protecting the nation’s physical infrastructure from terrorist attack. Roundtable representatives took part in another Homeland Security Office workshop in July that dealt with bio-terrorism and buildings.

Another matter to watch is Treasury’s ongoing implementation of the USAPatriot Act, which seeks to block terrorists by cracking down on money laundering and improving financial institutions’ verification of customer identity. Real estate firms–including investment advisors and opportunity funds–involved in closings and settlements should become familiar with the new law’s requirements and take steps to ensure they are in compliance.

As policymakers rush to complete action on these and other importantpolicy matters, our industry’s unified action can help ensure that what emerges from our nation’s capital this fall makes sense for the long-term health of our industry and our nation’s economy. Jeffrey D. DeBoer is president and COO of the Real Estate Roundtable (www. rer.org), the Washington, DC-based real estate industry lobbying group.