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Owners Still Grappling With Insurance

CHICAGO-Pricing and availability of coverage continues to be an issue even for the most well-heeled REITs, The Gerald Fogelson Forum on Real Estate is told. Deals have been pulled off the table as a result of higher costs.

By Mark Ruda | Updated on November 19, 2001

CHICAGO-Even multifamily giant Equity Residential Properties, which has a self-insurance program that allows it to take the first $4 million of a loss, has been affected by changes in the risk management business. The cost of insurance in Florida is now so high, Douglas Crocker says, that the REIT is not selling any of its properties in that state.

Crocker notes that even though premiums have increased 50% on the REIT’s properties, for coverage that includes $500,000 deductibles, the insurance adds up to about 2% of the portfolio’s total operating expenses. However, the cost of coverage has increased so much on some properties that it has severely sliced into net operating income, thus reducing the value of the property unless capitalization rates go down even further from their already historic lows.

In Florida, Crocker told The Gerald Fogelson Forum on Real Estate here, insurance costs were less than $70 per unit before Sept. 11. After the terrorist attacks on the US, the costs nationwide have risen to $85 per unit. In Florida, however, renewals are coming in at $400 per unit, he says.

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