A lawsuit filed by Four Times Square Associates challenging its lenders’ demand that it pay a tenfold increase in insurance premiums to provide terrorist coverage on a “trophy building” in Times Square, which is home to the NASDAQ stock exchange, has potential implications for commercial property owners, mortgage lenders and insurers across the country.
According to a report from Reuters News Agency, the lenders are asking Four Times Square, which is majority owned by the Durst Organization, to pay up to $5 million in premium to insure the 48 story building against the risks of a terrorist attack. The amount is 10 times what the building’s owner was paying under an “all-risk” policy prior to the Sept. 11 attacks.
Four Times Square resisted the demand by going to court, and successfully obtained an injunction against the demand, but the lenders have appealed the ruling. While the case affects high profile buildings that are already in existence, it potentially has an even wider implication on the mortgage lending markets for the future construction of commercial buildings.
Lenders could well become even more reluctant to commit funds to such projects, if adequate insurance against terrorist risks can’t be obtained. The Reuters article also noted that, as large loans are frequently securitized and sold to investors, bondholders could be at risk as well.
The solution would seem to be some form of federal program to cover terrorist risks which the private sector can’t, or won’t, assume, but so far Congress has taken no action on such proposals.
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