Insurance Spikes & DSCR: Are any lenders mandating "Risk Tech" yet?

Question

I’m operating out of DFW (ground zero for the insurance crisis), and we are seeing a disturbing trend with Class B/C operators.

Because insurance premiums have doubled, operators are raising deductibles to $25k or $50k just to make the DSCR work for the loan.

The Problem:
When a pipe bursts (which is the #1 claim), the operator doesn't have the cash to cover that $50k deductible. So they defer the maintenance. The mold spreads. The asset rots. The collateral loses value.

My Question for this Group:
As lenders holding the note, are you starting to mandate any kind of physical risk mitigation (like leak detection or auto-shutoffs) as a condition of the loan?

Or are you still leaving it up to the borrower to decide if they want to protect the building?

I’m curious if anyone is giving "Underwriting Credit" for assets that have 24/7 monitoring systems in place, or if the market is still too raw for that.

Mazen Daiban · Answer

@Chris Seveney

Yes strictly Commercial/Multifamily (50+ units).

That makes total sense. You guys are the disciplined ones. The issue I see is that a lot of operators try to squeeze the CapEx budget too tight and skip the tech entirely, just hoping the reserves will cover it.

Auto-shutoffs. Since you use them, do you find the hard-wired valves are worth the extra cost/plumbing work?

We found a lot of owners couldn't make the math work on valves ($600+/unit), so we focused on just the "Alerts" (Sensors only) to drop the cost to ~$230.

Curious if you think the automatic shutoff is a "must-have" or if a fast alert to the maintenance team is good enough?

Chris Seveney · Answer

we use floodstop shutoff valves for washing machines, cost $250 each and take 15 min to install. Watts also has some product. found washing machines and water heaters are what have the biggest problems.

Chris Seveney · Answer

Are you talking commercial or residential? I asume commercial because of a $50,000 deductible.

As lenders we do not require leak detection or auto shutoffs. We do require reserves and if the proeprty has a $50k deductible then the reserve would be well above that. As an owner as well, we put leak detection/auto shutoffs in our units - especially dishwashers, HW heaters and washing machines.