This story is the second in a series of articles looking at how the rising cost of insurance is affecting apartment owners. Click here for part one.
As increases in insurance costs continue to pummel apartment developers and owners across the country, multifamily leaders are exploring new ways to deal with the issue.
The publicly traded apartment companies, which have portfolios spanning the U.S., have been hit as hard as owners who just have a few assets.
Houston-based Camden, with holdings on the coasts and in Texas, anticipates a higher expense line item this year, which was “entirely driven by actual and anticipated higher insurance costs.” It predicts that its total insurance expense will increase 35% in 2023, CFO Alexander Jessett said on the company’s first-quarter earnings call in April.
For Chicago-based Equity Residential, insurance prices rose a relatively mild 20%, perhaps in part because the company has no holdings in Florida, which has a hotbed for exorbitant premium increases. Denver-based REIT UDR, with a portfolio on the coasts and in the Sun Belt, and Palo Alto, California–based Essex Property Trust, with a foothold on the West Coast, also said that they recently locked in their insurance renewals at around 20%.
But the premium hikes go far behind the industry’s biggest players. They’re also hitting local and regional investors and developers. Multifamily Dive spoke with multiple sources and listened in on REIT earnings to gauge how the premium bumps are affecting the apartment industry.
CEO, Chicago-based REIT Equity Residential (on a recent earnings call)
If you're buying in some markets, you're going to have higher insurance costs, but maybe lower political risk. And then another market, you may have slightly higher political risk and a lot better resilience and maybe a better supply picture. Our whole investment thought process of being diversified is premised on the idea of accepting these risks in small doses across the whole country and staying tied to these affluent renters, so [insurance costs] don't change our mind [about where to buy].
We just underwrite it, and the deals will either work or they won't. I do think that some of the markets that have outperformed lately in the Sun Belt have resilience challenges.Back to top
President, Indiana–based apartment developer and manager The Garrett Cos.
Builders' risk and stabilized insurance costs are definitely increasing. Obviously, some of this has to do with just increasing construction costs, so they [the insurance companies] are trying to play catch up. Some of that has to do with some of the hurricanes and other events that are happening in Florida.
But the market is completely out of control. Some of the quotes that we're receiving are double what they were — if not triple what they were — not more than a year and a half ago. So we're battling that just like everybody else.
Even if we're not holding something long-term, we still have to battle with the disposition side when the new buyers are underwriting insurance costs, which affects our costs. So we're definitely monitoring that.Back to top
Chief operating officer, Coral Gables, Florida–based apartment owner Beacon Real Estate Group
A big issue that I find extremely concerning is insurance in Florida. Insurance has been going up for commercial property by 80% or 100%. And on residential multifamily, I don't know. It's 20% or 30%.
It's a big concern. I think that it’s going to hurt a lot of people and I don't think it's only landlords like me. I think it's going to be homeowners and commercial property owners. It's an issue.Back to top
Director of risk management, King of Prussia, Pennsylvania–based apartment owner Morgan Properties
This is the toughest property insurance market most brokers, carriers and risk managers can recall. In order to offset increased property insurance costs, we’ve decided that we should fully invest in our risk control and claims management activities. This allows us to take a higher retention and deductible on general liability and workers' compensation.
Because we are confident in our ability to control workers’ compensation and general liability frequency and severity, we ultimately had a flat renewal year over year. We achieved this by offsetting increased property premiums against a reduction in general liability and workers’ compensation premiums.Back to top
General partner, Newport Beach, California–based apartment owner Revitate Cherry Tree
Insurance at our Beech Grove property in Indiana actually went down a little from our initial May 2022 policy and slightly increased by 2% at our Three Fountains and Fountainhead properties in Kansas City, Missouri.
Candidly, we haven’t really seen insurance costs outstrip inflation in our Midwest portfolio. We certainly have not seen the kind of insurance hikes born of the disasters that have occurred in Florida and California. The wildfires of 2017 and 2018 here in California have, in some instances, doubled insurance costs on some asset classes.
We have not seen anything like that in the Midwest. There are limited risks there from wildfires and earthquakes. Wind and hail insurance is needed in Nebraska and Kansas, but they are based upon lower replacement costs than in coastal regions.