GlobeSt.com: How has that impacted the multifamily market?

Cassidy: It has changed the economics. Insurance is the second-largest expense after real estate taxes. Additional coverage can raise the total premium 15% or more. That hike puts pressure on profits.

Multifamily property owners and managers already run tight budgets, so there are not a lot of areas to cut costs. They can try to raise rents, but those are essentially dictated by the market.

GlobeSt.com: So, owners see their bottom lines squeezed. What are the other effects?

Seacat: We are seeing deals fall through. Buyers can't find the needed coverage for their specific property or the overall increase in price kills the deal. When the buyer is quoted a premium that is 25% higher than the seller's, the CAP rate falls and the property no longer looks attractive.

ATLANTA—Sticker shock is a reality amoung multifamily owners and buyers. Not so much in the sale prices, but with insurance rates.

GlobeSt.com caught up with Ryan Cassidy and Evan Seacat, both senior directors at Franklin Street Insurance Services, to discuss how lenders have changed their prices in the wake of major storms and how this has impacted the multifamily market in part two of this exclusive interview. You can still read part one: What to Do About Insurance Sticker Shock.

GlobeSt.com: How have lenders changed their practices?

Evan Seacat: Banks became wiser from their experiences with storms such as Hurricane Katrina and Superstorm Sandy. They found themselves holding mortgages to damaged assets that were not insured properly. So, they hired insurance consultants who told the banks that proper steps were not being taken to protect those assets. Now, these consultants, pick through policies looking for gaps in coverage.

GlobeSt.com: How has that impacted the multifamily market?

Cassidy: It has changed the economics. Insurance is the second-largest expense after real estate taxes. Additional coverage can raise the total premium 15% or more. That hike puts pressure on profits.

Multifamily property owners and managers already run tight budgets, so there are not a lot of areas to cut costs. They can try to raise rents, but those are essentially dictated by the market.

GlobeSt.com: So, owners see their bottom lines squeezed. What are the other effects?

Seacat: We are seeing deals fall through. Buyers can't find the needed coverage for their specific property or the overall increase in price kills the deal. When the buyer is quoted a premium that is 25% higher than the seller's, the CAP rate falls and the property no longer looks attractive.