Impending legislation renewing the federal backstop for terrorism insurance could pare down this safeguard, creating havoc in the market for commercial real estate (CRE), and, by extension, commercial mortgage-backed securities (CMBS). Despite advances in modeling this risk since the attack on New York’s Twin Towers, it may prove challenging for capital markets investors to pick up the slack.

A preliminary bill from the U.S. Senate Committee on Banking, Housing and Urban Affairs is anticipated within weeks, and the House Committee on Financial Services is expected to take up the issue by late April. Current talk on K Street points to a law by summer’s end, before elections rev up into full gear. However, CRE borrowers, whose loans provide fodder for the CMBS market, would prefer a solution sooner rather than later.

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