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Florida’s Troubled Insurance Market Increasing Concern For CRE Investors

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within 2 weeks Hurricane Ian Storm devastation has been revealed as it roils the southwestern coast of Florida. Over 120 dead Estimated $60 billion to $70 billion worth of property damage.

now Search and rescue operation ended, attention has shifted to recovery and reconstruction, but a big cloud hangs over that effort. A state property insurance market teetering on the brink of collapse.

Hurricane Ian destroyed the Fort Myers Beach boardwalk and shops.

A dozen homeowners insurance companies have either Have left the state or folded in the last 2 yearsthe remaining insurers have significantly increased premiums over the past two years.

While the situation for commercial property insurance is less severe, there are still widespread concerns about the impact of storms on owners’ ability to insure their properties going forward.

“I think we’re going to lose more insurers as a result of this storm. I’m sure those who are left will see this risk and say, ‘We’re going to have to think about repricing,'” said Florida. Shelton Weeks, director of the Lucas Real Estate Development and Finance Institute in Gulf, said.Coast University Fort MyersSaid Bissnow.

“This has to be reflected in the pricing of commercial real estate. From an operator’s perspective, regardless of the type of property you operate, they come directly from the revenues that drive your business in the state.” will affect.”

Weeks said it is “very likely” that some insurers will stop insuring properties in the state within the next year, especially properties built before Hurricane Andrew’s building codes were raised. ‘ said.

It can have a dramatic impact on the industry.

“For me, it’s a real concern,” he said. “If that happens as a result, I think we’ll be forced to either take out self-insurance or tear down and replace older structures. leads to.”

Premiums have risen 20% to 25% in Florida commercial real estate alone in the past 18 months alone, he said. Spencer Morristhe developer’s president Allen MorrisWe own offices, hotels and apartments in the state.

“That single item continues to grow certainly faster than most other operating cost items in the building. [operational expenses] Stack it up,” said Morris.

Morris said his company has strategically moved investments away from South Florida in recent years to other markets less exposed to climate change risks. He said he hadn’t seen commercial property insurance options decline, but it would be a “big problem” if insurers stopped writing new policies.

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Aerial view of Florida’s west coast flooding after Hurricane Ian.

Mark Friedlander Chief Communications Officer Insurance Information Associationsaid the state’s commercial property insurance ecosystem is much healthier than the homeowners insurance market.

The industry’s high failure and loss rates are largely the result of widespread lawsuits involving states, he said. III. Florida accounts for 9% of homeowner insurance claims and 78% of lawsuits nationwide.

“Home insurance lawsuits from Hurricane Ian could be between $10 billion and $20 billion,” Friedlander said in an interview. “It’s off scale. You can see the trial attorneys are already very aggressive in the aftermath of Hurricane Ian. This could be a controversial event.”

In commercial real estate, the same controversy has not arisen. But another problem is taking hold — rapidly rising premiums are straining the delicate formulas investors use to acquire properties. hottest market in the country.

“This doesn’t help a tight market. Everyone thought it was starting to soften a bit.” islandis a proptech company that tracks corporate disaster risk on a property-by-property basis, counting giant CRE companies such as: brookfield, JLL When Prologis among its clients.

Friedlander said insurance premiums are rising more due to rapid increases in replacement costs than changes in climate risk calculations.

According to III, soaring construction costs and lawsuits have led to higher insurance payouts, and even in 2020 and 2021, when there were no major hurricanes in Florida, property and casualty insurers lost more than $1 billion each year. was

As prices soar, more and more companies are looking to find solutions beyond traditional capital insurance, Sandler said.

Large companies are increasingly using mechanisms called “captives”. A captive sets up another entity to guarantee an asset with interest-bearing cash.

“These companies have so much money and have such huge balance sheets that they can make decisions about capital, but we don’t want to hand it over to Chubb,” Sandler said. “These big companies are focused on a large part of the market, but they’ve been using their own balance sheets for years. [to insure properties].”

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Hurricane Ian hit Florida on September 28th.

Daniel LombardoHe chairs the global real estate practice of insurance brokerage Rockton.

trep estimate Over $50 billion of commercial real estate debt exposure Path of Hurricane Ian. About $2 billion of that is in the storm-bearing Cape Coral-Fort Myers area.

“I was having this conversation with a senior official in the lending community. At some point, we need to work with the Florida real estate community and the lending community to come up with an insurance solution. Because insurance companies are not given incentives to come into Florida at this time,” she said.

Lombardo said some clients are already rethinking acquisitions in Florida due to rising premiums and fewer insurers. The state’s rapid population growth and ensuing development boom have increased the burden on providers, along with rising construction costs and projected billions of dollars in damages.

“As population grows and development increases, more and more insurance capital will be needed, and fewer and fewer insurers will want to underwrite the business. says.

“They’ve increased deductibles to the point where lenders won’t accept the deductible structure, and costs have skyrocketed to the point where they’re killing deals. I can’t do it.”

Alex Gratereaux and Miriam Hall contributed reporting for this article.

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