Landlords want to attract and keep tenants, especially where vacancy rates are high. Maguire Properties, the largest owner of Class-A office space in Los Angeles, meets with tenants on a monthly basis to monitor their security needs, says Ted Bischak, senior vice president of asset management. "We keep tweaking policies and procedures."
Once the bar is set though, it can be hard to shift. After 9-11, building managers made an effort to beef up security to unprecedented heights. The result, Coleman says, is that it may have established a level that is artificially high. "Make sure that you can live with your standards on a long-term basis," he cautions.
Mortgage lenders are unlikely to insist on specific upgrades. Phil Horowitz, a partner at Venable LLC, and president of the American College of Real Estate Lawyers, says that "so much capital is frantically chasing loans, it would be unusual for a lender to refuse [a deal] for security reasons." In fact, lenders are leery of becoming involved with directing building operations, which might open them up to liability. "They don't want to be sued, especially since they have deep pockets," explains Horowitz.
Lenders do demand terrorism insurance coverage for office buildings, regardless of location, trophy status or even height. That terrorism component must be included in the general hazard insurance for the full cost of building replacement, after backing out land and foundations.
Ralph Arpajian, a New York city attorney with Paul Hastings, often represents borrowers. When he negotiates with their lenders over lengthy leases, he tries to cap the component for terrorism insurance at two to three times the cost of current premiums.
"That assumes TRIA - the Terrorism Risk Insurance Act - remains in effect, to provide a backstop of government coverage for certain types of terrorist acts." TRIA has recently been extended to December 2007.
Some tenants balk at visitor escorts and delays. But most, like airport passengers, are willing to put up with some inconvenience. Enhanced security has clear benefits, but owners must consider the expense and intrusion. On the plus side, quality security systems can help retain tenants, lead to a decrease in theft and reduce insurance premiums.
In a risky world, perfect security is unattainable. Unexpected terrorist threats, not to mention natural disasters, can arise without warning anywhere. (Who would have imagined four commercial airplanes would be used as missiles?)
The best hope is to address security threats with a suitable mixture of technology and human surveillance. As part of that two-pronged approach, experts emphasize, efforts should not be wasted on cosmetic changes that fail to truly enhance protection.
GSA is at forefront of building security
When a rental truck exploded inside the Murrah Federal building in Oklahoma City in 1995, killing 168 people, the horrific incident served as a wake-up call for the government to re-evaluate its security standards for building design, which are often more stringent than safeguards in the private sector. The General Services Administration (GSA) subsequently upgraded its "security design criteria," which categorize types of government buildings into five levels, each requiring certain protective measures.
The new rules require high-security buildings to be set back from public streets, and shielded by bollards and reinforced concrete slabs. Vehicle access is more carefully controlled, both by guards and wedge barriers on driveways.
Despite the progress, a huge amount of space in government buildings still does not meet today's criteria, which will become problematic as leases mature, warns Phil Horowitz, a partner at law firm Venable LLC and president of the American College of Real Estate Lawyers. The only options are to undertake expensive upgrades, or relocate altogether.