NATIONAL REPORT— President Bush has signed into law the Terrorism Risk Insurance Act of 2002 (TRIA) to the relief of the commercial real estate development community. The issue of terrorism insurance has been of special concern for hoteliers in a post 9/11 environment, with some hotel and real estate developers in general finding lenders reluctant to finance their projects. That dynamic also led to concerns that properties on the books would not be built, and that jobs would be lost, according to proponents of a terrorism insurance law. While full details as to how the passage of the legislation would affect the industry were still unclear at presstime, this much was spelled out in a paper published by the Willis Risk Solutions Property Practice: The federal government will act as a backstop to the insurance industry when “certified terrorism” losses exceed $5 million in a single event. Once this threshold is reached, each insurer will retain in the aggregate per program year a certain percentage of risk before being eligible for reimbursement— for 2002, 7%; for 2003, 10%; and for 2004, 15%— of the direct earned premiums of that insurer for the calendar year preceding the loss. The government will cover 90% of the excess over the individual insurer retention and the insurer will cover the other 10%. The backstop program is capped at $100 billion. Neither the government nor the insurers are liable to amounts above that. Canceled Transactions Moreover, according to the paper, “all such carriers must make ‘certified terrorism’ coverage available to each of their policyholders. Acts of domestic terrorism, such as the event in Oklahoma City, would not be covered by the TRIA. At the signing of the new legislation, Bush noted that more than $15 billion in real estate transactions had been canceled or put on hold because owners and investors could not obtain the insurance protection necessary. Hotel developers surveyed by HOTEL BUSINESS® applauded the passage of the insurance Act. “It’s certainly going to help development, because [the insurance]just wasn’t there previously,” said Vijay Dandapani, COO of Apple Core Hotels in New York. “So, potential developers are going to feel an incentive to go ahead and do some development in major city centers. I can tell you, that although we don’t have anything in the pipeline right now, we did look for terrorism insurance when we were looking at a deal earlier [in 2002], and it wasn’t available.” Adam Aron, chairman/ CEO of Vail Resorts, and chairman of RockResorts, agreed that passage of the Act would spur development in cities. “The passage of the terrorism insurance legislation once again makes construction possible in urban areas, and given the recent Bali bombing, probably in non-urban, resort areas as well,” said Aron. R.C. Patel, chairman/CEO of the Diplomat Companies, was equally enthusiastic about the measure. “The newly passed terrorism insurance legislation will have a positive impact on the industry. Until now, there was no such insurance being provided for developers, which, in turn, stopped development lending. Now that developers are able to procure insurance, all systems are go again,” he told HOTEL BUSINESS®. The transaction side of the business could also be aided by the new legislation, according to Robert Johnson, CEO/RLJ Companies. “I believe [passage of terrorism insurance legislation]will make it easier to obtain financing for hotel construction as well as acquisition,” he said. The protection ensured by the Act does indeed make transactions more feasible, especially since it brings down the costs of adding properties to one’s portfolio, said Dick Stormont, chairman of Stormont Hospitality. “It helps the comfort level of major institutions [that might want to acquire hotels], especially the Europeans,” he said. Fred Kleisner, chairman/ CEO of Wyndham International, said his company did not face much exposure to the industry’s travails over getti
