Congressional Real Estate Caucus discusses impact of WTC disaster.

While New York City continued to grapple with the aftermath of the World Trade Center disaster last week, the Congressional Real Estate Caucus huddled in Washington, D.C. to discuss the economic repercussions of Sept. 11.

"We have arrived at a pivotal economic moment. We knew a few months ago that the economy was slowing. It wasn't clear where it was headed," said Rep. Phil English, R-Penn., co-chairman of Congressional Real Estate Caucus. "The tragic events of Sept. 11 clearly have had an impact on depressing the economy and we are going to see in coming weeks what the overall consequences are going to be."

More than 100 industry representatives and congressional staff attended the briefing held Oct. 3 at Capitol Hill.

Participants in panel discussion were: English, Rep. Richard Neal, D-Mass., co-chairman of the Congressional Real Estate Caucus; Owen Thomas, managing director of Morgan Stanley Realty; Dr. David Lereah, chief economist, the National Association of Realtors; David Seiders,. chief economist, National Association of Home Builders; and Douglas Duncan, chief economist, Mortgage Bankers Association of America.

Nationwide, there are nine million people who work in the real estate industry. The aggregate value of the nation's real estate stock is $20 trillion and privately owned real estate contributes about $1.4 trillion each year to the economy, or 12 percent of the gross domestic product, Neal said.

There are 11 billion SF of office space in America, providing space for 28 million workers. The industry generates over $290 billion annually in federal, state and local taxes, according to Neal.

Thomas gave a presentation called "Real Estate in the Aftermath" that outlined the impact of Sept. 11 on the office space and other aspects of the industry. About 30 million SF of office space was destroyed or severely damaged, which is roughly the size of the central business districts of Atlanta or Miami. There are 9,000 residents of Battery Park City, which is about 30 percent occupied at present, Thomas said.

Out of the 16 buildings impacted, there were 480 tenants affected representing 30 percent of the downtown inventory. There were six financial services companies that had over a million SF in the area, including Morgan Stanley.

"For those of us that have been down there or own properties in the marketplace, things are very different downtown. Given the presence of troops, dust, dirt, barricades everywhere, people wearing masks going to work, it's obviously an extremely different environment than what it was before the attack," he said.

In terms of relocation, about 6.2 million SF of leases have been signed, although the number could have risen to 7 or 8 million SF in recent days. Of the leases that have been signed, only 12 percent are in downtown, 26 percent in the suburbs and 62 percent in other areas of New York, Thomas said.

"Not all the tenants are taking back the same space they had. Even our firm, which lost 1.2 million SF, has not leased back that amount of space in e New York market or the surrounding market," he said.

Insurance claims will be in the $25 to $30 billion range, which most likely will be covered because terrorism historically has not been excluded from insurance coverage, he said.

"One big issue that our industry faces is the insurance issue. The reinsurance industry has testified that they are not going to be prepared to reinsure acts of terrorism going forward, and this will have a big impact on the real estate industry in terms of both selling buildings and refinancing buildings," Thomas said. "Obviously sources of capital that invest in real estate will be concerned about not having insurance for acts of terrorism going forward."

In the commercial mortgage bank securities (CMBS) industry, Thomas said the industry was expecting record issuance, or $65 million, due to the lower interest rates and has been holding up pretty well since the disaster. REITs have been outperforming general indices since the beginning of the year and has continued to outperform since Sept. 11, he said.

"So overall real estate is still being seen in the marketplace as a defensive sector and it's performing better," Thomas said.

Across the country, the lodging industry has been affected most by the disaster. Some urban and full-service hotels are experiencing 20 or 30 percent occupancy levels and layoffs of 500,000 employees are expected. Revenues per room, or RevPar is down 3.5 to 5 percent. The previous record drop was 2.5 percent, he said.

"We believe the marketplace generally believes that hotel companies have sufficient liquidity to meet debt obligations," Thomas said. "There are issues about debt covenants. We think there may be lodging companies that may have to cut their dividend in the fourth quarter, given what's occurring right now in terms of demand."