The Risks of Wind and Storm Damage for Commercial Buildings
Over the last two centuries, about 90% of the world’s millionaires have been created by investing in real estate. Real estate offers a unique opportunity to develop significant wealth, oftentimes with somewhat hands-off ownership and management. The real estate world is more often than not a very challenging business, however, there is a reason it is popular, and many envy those who are in a position of property ownership. If managed correctly, owning property can be a hassle-free way to make a significant living. To be in a position to earn this passive income, Landlords have to provide functioning occupiable buildings. Buildings need to have a working roof, air conditioning, basic structural integrity, and general cleanliness. Without these basic things, tenants will not be attracted to a building, and those who are in place as tenants will flee. In addition, code enforcement officials from the local government agencies will not allow the properties to be occupied at all, regardless of tenant interest, if the basic occupiable needs of a property in the current world are not met.
Landlords dedicate substantial money and time to property upkeep, both cosmetically and functionally. After all, all things bring. Just as everyday Americans drive shiny new cars off a lot that have a functional life and eventually fail hundreds of miles in, so do properties. The difference being periodic maintenance for buildings can allow them to stay modern and function well beyond our lifetimes. Most of the maintenance and upkeep efforts for properties are physical oversight, general repairs, and replacements. For example, roofs generally last 20 to 30 years depending upon the material used, maintenance, and the geographical location of the site. HVAC (meaning “heating, ventilation, and cooling”) units generally last 15 to 20 years. Other elements have varying life such as structures lasting decades while smaller interior fixtures have a shorter useful life. Maintenance around these items will revolve around their useful life and current condition. That said, these are not the only upkeep efforts landlords need to properly run their properties. The other very necessary element to property upkeep is insurance. Most property owners cannot afford their property. Yes, I said it, most property owners cannot afford the property they are buying or that they already own. The reason for that is properties cost tens of thousands or even millions of dollars to purchase. Today’s construction costs are extremely high, therefore new construction or rebuilding in the event of a disaster is very expensive. In instances requiring a complete or partial rebuild, the construction can be just as expensive or even more expensive (remember if you are rebuilding oftentimes you need to demolish and remove the old structure) than a new build.
So how do people afford these costs? The average American family has $ 40,000.00 in savings across all accounts, yet the average home in costs $ 230,000. Commercial properties are often many times more expensive. The answer to affording these costs is financing. Modern lending and government programs allow property owners to pay for these costs in monthly increments over the course of generally 30 years for residential housing properties, and 15 to 20 for commercial properties. With this arrangement, buying power for the average consumer increases exponentially, allowing them to dip into their savings, not spend all of it, and still afford a home cost much more expensive than what their existing in-place cash holdings tell them they can afford. Financing is not the only avenue to property ownership. Financing allows property owners to get into the ownership of their property. Other avenues allow property owners to remain in ownership of these properties, most notably insurance.
Just as the average American’s current cash holdings cannot afford to purchase a property without assistance from outside groups, that same person (or property owner) years later will more than likely not be able to afford a new build or re-build of a property without assistance. This is where insurance comes in. In the event of a major issue, accident, or act of god – properly planned insurance programs will allow property owners to retain their cash holdings, continue with their current level of livelihood, and still remedy the major issue on their hands without wiping out their cash holdings and ruining their lives. Accidents do happen and we all need to recognize that. A property owner may be the best property owner in the area, with flawless execution on continued leasing of the property, periodic maintenance, and an overall hands-on attitude. That same owner can seemingly do everything right yet still find themselves with a disaster on their hands. One driver swerving off a road can run into a structural support in the building and knock it down. A tree can crash through the roof of a building. Worse off, a major storm can come and wipe out the building completely. If car insurance is a requirement, building and property insurance must be as well due to the financial magnitude of any of these unforeseen issues occurring. Insurance is so important that the same lenders I mentioned earlier who allow the average person achieve ownership of a property far outside their current cash needs will also require these same purchasers to hold a certain level of property insurance or their loan will not be granted up front, and later defaulted if the insurance is not maintained during the time of ownership.
Insurance for Commercial Properties
The insurance programs required by these lenders are often simply minimums and not truly reflective of the costs required to remedy a situation. Too often property owners look at these policies and tell themselves it is ok to arrange their policies around the minimum. Too often insurance companies and advisors simply take these numbers and issue policies. Oftentimes none of these parties involved take the time to analyze the situation, the property, the risks, and the policy minimum requirements. Our team will. Sure, we will provide you with pricing on the minimum coverage required if you request it. We will also issue that same policy if you request it too. What will be different will be your experience. If you elect to go with the minimum coverage, you will understand all of your options, pricing, value, and why. Sometimes the minimum policy coverages are appropriate and should be in line with any insurance coverage advisement. Oftentimes they are not whatsoever. In either instance, our team will study the property, the risks associated with its specific location, its geographical location in the world, and the financial situation associated with the property as well as the owner. Based on this information, we will assemble a custom advisement plan for each of the properties and /or clients which will walk them through the minimum coverages required, the pros and cons of these coverages, alternative coverage recommendations, the pros and cons of this alternative coverage, and the costs associated with any of these options. You will be informed and in a position to make an educated decision.
Insurance is integral to the ability to survive any major catastrophic issue. It is also a requirement for lenders and frankly to sleep well at night. Oftentimes tenants require property owners to carry insurance or they will not rent a property, or even set foot in them! Although insurance is extremely important and integral to the sustainability of a property, there are other options as well to allow us to avoid a major issue in the event of a major storm, wind damage, or other catastrophic events.
Modern sophisticated landlords put together leases with legal language protecting them against so-called “acts of god”. These “acts of God” include major weather events and other items, however, the reality is buildings that are in disrepair will not attract tenants, buyers, or even lenders to refinance a property, otherwise known as liquidity events. Without liquidity, the enviable aspects of real estate are in fact the opposite – unenviable. Non-functioning real estate is difficult to sell and a burden financially for owners due to property taxes, code violations, mortgage costs, and necessary upgrade costs, which can be significant. With this in mind, having the appropriate insurance coverages and resources is extremely important. Without them, landlords cannot provide a safe roof over a tenant’s head, and in turn, rent will not come in the door.
In the Southeast United States and most notably the state of Florida, detrimental weather events are a common occurrence. In fact, we expect them nowadays. With hurricane threats persisting for half of every year paired with the threat of 1 or 2 hurricanes on average annually and many tropical storms each year, the threat seems to be nonstop. These threats are only getting worse. Despite commentary from some leaders to the contrary, climate change is real and it has not been a friend of the area we call home, the Southeast United States. Hurricanes oftentimes can now be seen 3 or 4 times per year. While hurricane season lasts six months of the year, these types of storms are most active from August to October of each year, with September seeing the most storms on average. With this increase in storms and a concentration of these storms occurring during certain times of the year, you now can see major weather events occurring back to back or within a few weeks of each other. One hurricane is enough, let alone two within only a few weeks. The right insurance plan will allow you to deal with what can be long drawn out time periods. Property insurance is obvious but what about business interruption insurance? Repairs and rebuilds can take weeks, months, or years. Outside of the physical damage cost, oftentimes the bricks and sticks of a property are at the heart of a business, such as for retail locations. Without this location, there is no business. We will be sure to inform our clients of business interruption insurance options that will compensate our clients during this downtime and allow them to weather the storm associated with any of these interrupting events.
As soon as a hurricane season ends, landlords must prepare for the next season ahead, even if they were lucky to not sustain damage the previous season. How to prepare? The answer is the right professionals. Our team will analyze your property and prepare for all potential property issues. Storm preparation analysis will come hand in hand with wind analysis and a review of geological conditions which may be a risk for events such as sinkholes and other elements. Before a future damaging storm even occurs, you will be aware of all potential risky conditions and points of potential damage. Following these upfront and periodic analyses, we will provide you with the appropriate insurance coverage recommendations. We cannot control your choices or the storms themselves, but we can control your knowledge of the risks, the decisions, and your future. Knowledge is power, and we will give you the power to be prepared.
In the event of a major catastrophe, we will be a resource. Oftentimes insurance providers are conveniently available to cash your check or run your credit card, but nowhere to be found when they are truly needed, in the event of a major incident. We will be by your side from start to finish. We will be there upfront to prepare you, and through the entire process from the date of damage to the date of reopening to guide you through the process. We will be a resource for damage assessment, remediation contractors, rebuilding guidance, and everything else you need to get back on your feet. When you are a client you are family. A family does not leave each other behind, they provide a helping hand to get you back on your feet when you are down. Our hand will be out as soon as you are knocked down. Call us to help, our team of professionals is consistently available as a resource for both actionable items and simple guiding advice.