NEW YORK CITY—Add CMBS to the key aspects ofcommercial real estate that would be undermined bya Congressional failure to maintain the present level of theTerrorism Risk Insurance Program ReauthorizationAct, which provides federal reinsurance for large-scaleclaims related to terrorism and which expires at year's end. Sosays Standard & Poor's in a new report, whichsays that although Congress is expected toreauthorize TRIPRA, it's possible that there will be significantchanges, including scaled-back coverage.

“If history is any guide, CMBS credit and liquidity issues coulddevelop if TRIPRA is not renewed or is cut back substantially,”writes Larry Kay, primary credit analyst atS&P. “Either could cause a property's insurance premium tojump, leading to declines in property net operating income andvalue.” He adds that the longer a cloud of uncertainty hangs overrenewing TRIPRA, the greater the perceived risk of “unaffordable orunavailable insurance increases,” which could negatively affectproperty valuations.

Not only could a scaled-back or defunct TRIPRA potentiallyshrink a CMBS loan's underlying collateral value and triggering anegative credit event, liquidity issues could also develop, Kaywrites. “This could arise if a borrower fails to maintain therequired insurance coverage and the master servicer decides toforce-place the insurance.”