Multifamily Property Insurance - Post Sandy
The ripple effect of Hurricane Sandy aftermath continues to adversely affect multifamily property owners throughout the State of New Jersey by way of rising insurance premiums. No matter the building size (small 2-3 story walkups to 100+ unit garden style complexes) all assets were susceptible to potential damage from the elements. Due to the hurricane’s unprecedented physical impact on real property, many Owners for the first time gained a more clear understanding about the ACTUAL amount of coverage (or lack of) embedded within their respective risk management policy.
From a personal perspective, I experienced a rude awakening while filing an insurance claim for roof damage (loss shingles & breached layers). My carrier indicated any damage sustained from the wind/hail of Sandy was covered AFTER my two percent (2%) out-of-pocket deductible expense (in my case exceeding $12,000) was paid in advance. Not even the additional riders supplementing my standard liability coverage was enough to lessen the financial blow. As a result, I was compelled to explore alternate inexpensive resources.
In addition, for those who may be unaware, FEMA (Federal Emergency Management Agency) is in the process of implementing new flood maps which will include areas (mostly inland) previously not classified as a Flood Zone. As a result, many property owners may potentially incur the added expense of flood insurance, thus increasing fixed annual operating expenses. For property owners looking to acquire either their first or additional apartment asset(s) thru conventional financing, buyer beware that Lenders will be very reluctant in underwriting mortgages for property located in areas newly reclassified as “flood zone” unless require flood insurance is secured by the Borrower in advance.
Moving forward, multifamily holders are implored to review their respective insurance declaration pages. For those that sustained significant damage, did you find the “Dwelling”, “Personal Property”, and other structure coverage to be adequate? How well did your policy hold up against mold cleanup/water restoration costs?
Taking it a step further, revaluate the relationship with your current insurance carrier. Double-check credentials and confirm their expertise in multifamily/mixed-use properties. In the event you discover limited background, seeking advice from a risk management professional seasoned in this property type is strongly recommended. While conducting due diligence, be sure to address items such as hurricane deductible and flood coverage. In addition, model hypothetical scenarios to determine which sliding scale percentage deductible is appropriate for your apartment building and most important conducive to cash flow.
More natural disasters are inevitable. BE PROACTIVE…PROTECT YOUR ASSETS!!!