NEW YORK— Terrorism insurance issues could seriously hinder hotel development as nervous lenders seek to require protection on entire hotel porfolios. Such was the main cause for concern in an otherwise upbeat conference presented here by New York University about the outlook of construction and development. According to Timothy Zietara, senior vp/senior analyst, Wells Fargo Real Estate Group, who spoke at NYU’s Second Annual Conference on Real Estate Construction and Development here, the need for terrorism insurance “has grounded to a halt a few larger transactions— the sales of a few trophy hotel properties— in New York City. Those in particular who are buying CMBS bonds are requiring terrorism insurance… and the asking price for it is astronomical. Some lenders want this insurance on every property in a portfolio. Other firms, such as ours, are looking at properties on a case-by-case basis. There is no hard and fast rule about this. “If the federal government backs some of this insurance, it will grease the wheels to get some of the trophy assets back on the market.” Tietara contended that the government needs to look into the terrorism insurance issue, otherwise it could seriously affect development, particularly in the hotel arena. Daniel Tishman, president/CEO, Tishman Construction Corp., concurred, saying that terrorism is impossible to obtain. “If the situation is not addressed by the government, it will have stifling effect on construction. Before Sept. 11 the only variable you had to worry about when it came time to renewing insurance was a slight fluctuation in price. Now you see liability caps put on entire portfolios.” According to Susan Hayes, president/CEO of building and commercial interior firm Cauldwell Wingate, terrorism insurance is indeed impossible to obtain “at almost any price. Insurance, overall, is the most troubling future cost.” She said to offset the cost of insurance, which has been inflated by the call for terrorism protection, construction companies and developers must be careful on how they pass this cost onto the end-user. However, despite these warnings, panelists seemed upbeat about the future of construction and development, particularly in Manhattan. In fact, Tishman said “the outlook is bright,” and said to look for specialization on the part of builders to continue. For example, Tishman pointed to construction companies focusing on one type/segment of hotel to build, such as his company which specializes in four-star, business convention hotels. Other areas of specialization he noted included “green,” or environmentally friendly, buildings and high-tech buildings. “In a nutshell, the hotel sector is extremely resilient. I’m optimistic the industry has weathered the storm,” noted Michael Fishbin, partner, Ernst & Young LLP’s Real Estate Advisory Services. Fishbin noted that Manhattan especially has made a hard-fought comeback, with occupancies now nearly reaching the mid-70s range of last spring. However, room rates are still down about 20% at $165, year to date. He predicted the New York market to return to 2000 levels in 2004-2005. “This is a great time to plan, and hopefully get financing for development so that you’re open and on line when the full recovery comes,” Fishbin continued. He’s seeing many projects that were taken off the drawing board put back on. “Plus, many companies, like Kimpton, Destination Hotels, Taj and St. James, are scouring New York for opportunities to either acquire and renovate and reposition or build boutiques or other hotels as part a mixed-use development.” On the topic of capital, panelists said lenders are being very selective, with Sept. 11 only making them more cautious— something the industry has known for awhile. Zietara said, overall, the market is fairly strong and stable, and Wells Fargo has even closed several construction loans. “There is both foreign and domestic capital out there for good projects. It’s the more speculative
