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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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