Looking at the year ahead in New York real estate.

In the 16 months since 9/11, much has been written and discussed about the overall impact on New York City. As an accountant who has helped numerous real estate clients maximize profit over the past three decades, I am especially concerned about the insurance issues facing my clients in the years ahead.

In 2001, the insurance industry lost nearly one-third of its $350 billion net worth. This $70 billion lost on WTC-related real estate claims including liability, life, worker's comp, disability, business interruption, etc., has had a dramatic effect on the entire insurance market. Real estate industry insiders need to focus more attention on insurance going forward, including cost containment, policy exclusions, and reinsurance costs.

It comes as no surprise that, post 9/11; insurance companies dramatically increased the cost of coverage and are refusing to insure high-risk high profile buildings such as the Empire State Building against terrorism. Recently the federal government passed the Terrorism Risk Insurance Act, causing insurance companies to offer coverage to all insured. However, by setting prices so high, the insured may not 'be able to afford such coverage. In addition, the amount of insurance available may not cover the entire risk since the insurance companies have less capacity. This is a point we cannot overlook.

Insurance companies have also become much more restrictive about when they will pay out for a policy. If a water main break near your building forces the entire area to be roped off and your employees cannot get into the office, unless this incident did direct damage to your building, you may not be covered. You must read the fine print carefully to know exactly what is covered and what is not.

Industry insiders must also continue to keep an eye on the reinsurance markets. The reduction in the net worth of the reinsurance companies, from both claims and the volatility in the stock market, has reduced the amount of coverage these companies can offer.

A look at the local real estate industry reveals very different scenarios. Despite hundreds of millions of dollars in federal, state and city aid to business owners, commercial real estate - especially Downtown -- continues to have much higher vacancy rates than Midtown properties.

Foreign investment and the willingness of financial services companies to remain a strong presence in the city have helped minimize the impact of 9/11 on commercial real estate. Despite the effects of 9/11 on the American market, we continue to be the safest country in the world for foreign companies and individual investors who want to preserve their capital.

Residential real estate, however, has experienced an unprecedented boon over the past 16 months, both in new construction and in existing homes. In 2002 alone, prices have increased an astounding 10-25% nationwide, with people snapping up homes that they never have considered before. The market is very strong throughout Long Island.

The main reason for this picture has been the dramatic reduction in interest rates, which are at their lowest levels (5.85%) in over 35 years. As interest rates plummet, so do debt service payments, giving people the ability to buy more house than they originally could afford.

In addition, the continued volatility of the stock market has also fueled the resident real estate boom, as people look for safer places to park their money. While the residential segment remains strong, people need to remember to be properly diversified in their investment strategy. The impact of 9/11 has affected the entire real estate market in distinct ways. As long as industry insiders keep their eye on insurance related issues, they should be in good shape to succeed in the years ahead.