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Shopping Centers Today -> January 2003
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TERROR BILL PASSES, BANKRUPTCY REFORM DOESN’T
By Ian Ritter
Billions of dollars worth of real estate transactions and projects that had been held up through much of last year can now proceed, following Congress’ passage of the Terrorism Insurance Act in November. Bankruptcy reform, however, another issue that has long been pushed by ICSC and the retail real estate industry, once again failed to gain legislators’ support.
Members of the retail real estate community may already be enjoying the fruits of the new terrorism insurance law — cheaper, more available terrorism insurance — now that the U.S. government is backing property insurers to the tune of $100 billion per year (until at least 2004) for coverage against acts of terrorism.
Real estate groups, including ICSC, labor unions and others had lobbied hard for the measure after terror insurance premiums shot up following the Sept. 11 terrorist attacks of 2001. Differences of opinion over whether the insurance industry should repay government money slowed things down, as did efforts by Republicans to limit the liability of building owners in lawsuits arising from terrorism.
“Across America, hospitals and office buildings and malls and museums and construction jobs and many transportation companies have had difficulty finding terrorism insurance,” President George W. Bush said when he signed the bill.
More than $15.5 billion in real estate transactions in 17 states were held up or canceled because of the cost and scarcity of insurance following the attacks, said a survey by The Real Estate Roundtable, which is made up of executives from leading U.S. real estate institutions.
The bill provides for a three-year program under which the federal government would pay up to $100 billion in compensation a year for insurance industry losses exceeding a set minimum. The law requires the government to pay 90 percent of the costs arising from an attack if total insurance industry losses exceed $10 billion in the first year of the program, $12.5 billion in the second year and $15 billion in the third. For damages below these levels during the first year, insurance companies will pay up to the equivalent of 7 percent of premiums (with the government paying the balance), 10 percent in the second year and 15 percent in the third. The secretary of the treasury has the authority to require the insurance industry and policyholders to repay the government some or all of its assistance.
But while terrorism insurance legislation finally cleared Congress, bankruptcy reform, an issue that the industry has trumpeted for about six years, was derailed after it got caught in the middle of the abortion debate.
The bill would have limited the amount of time shopping center tenants have to assume or reject a lease after declaring bankruptcy to 120 days, plus an additional 90 days if approved by a judge. Currently, tenants have 60 days to decide whether to assume or reject a lease, but a judge can extend the time period indefinitely if there is a reasonable cause. This means that a bankrupt tenant’s space in a shopping center can remain dark without the landlord’s being able to sign another tenant.
Its proponents are hoping for a more favorable environment in this year’s Republican-led Congress.
“If the president wants a bankruptcy bill, he’ll get a bankruptcy bill, and [Congress will] do whatever they have to do to bring up a clean bill,” said Philadelphia attorney David L. Pollack, a member of ICSC’s Bankruptcy Task Force.
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