"In two to three years, you're not going to go to a commercial real estate closing and see someone produce a Phase I environmental report, just as today you're not going to see someone produce a title search or an abstract," says Perry, whose firm is an insurance underwriter brokerage working with lenders, owners, buyers, securitizers, investors and REITs.
Perry says the upfront premium for environmental insurance can be 30% more than the cost of a Phase I study. Premiums can cost $1,200 for $1 million in insurance and up to $3,000 for $5 million to $10 million in coverage.
Lauren Cerda, director of structured finance of commercial mortgages for Fitch, says rating agencies such as hers have been concerned about substituting insurance for Phase I studies. Of particular concern is what happens if the insurer fails to pay a claim.
Perry says there is not much of a track record available yet on claims, but suggests buyers check on the insurer's reputation in the market for paying off as well as their financial ability. Cerda suggests insurers should have a AA rating or better.
Cerda adds policies may have exclusions that fail to address all environmental risks. In addition, while Perry expects them to be commonplace in the future, policies are still the exception rather than the rule.
Policies are sold in the forms of a lender's policy that pays claims up to the mortgage balance if environmental problems are found, or an owner's direct liability policy. Policies can cover a portfolio or a single site, Perry adds, though single-site policies can be more expensive.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
