March 22, 2002—In a report issued in early March, Moody’s Investors Service announced that it would begin considering whether a property has terrorism insurance when rating real estate debt. Buildings without coverage might have their bonds downgraded, which could increase borrowing costs and make it difficult to fund new projects.
To evaluate commercial mortgage-backed securities, Moody’s has developed a formula for determining the likelihood of a building being targeted by terrorists, as well as the land value relative to the entire asset value. Different risk categories will receive different loan ratings. If a property’s land has substantial value even if the building is destroyed, the property will receive a higher rating.
Moody’s has said that it will not issue downgrades for at least two months, giving Congress time to create a federal backup for terrorism insurance.
For more information, contact Moody’s.
