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August 2018 Commercial Newsletter

August 2018 Commercial Newsletter

Download Complete Newsletter | Volume 6, Issue 8

How Much Does Your Property Insurance Really Protect You?

Property insurance is something that we traditionally insist on having in place on commercial properties that we own. The thought of potentially sustaining major damage to one
of our properties, and not being protected by insurance for the loss, would make most of us completely wince when thinking about it.

But what will your insurance company really pay you whenever you sustain a loss that you believe is fully covered by your insurance policy? We continually see ads and commercials telling us how much we can count on an insurance company to really be there and to do the right thing for us when we need them,but how much of what we hear around this is really true? There are stories we’ve sometimes heard over the years from friends and business associates, telling us the reality of what an insurance company really paid them to reimburse them for their loss, vs. what the person thought that they’d be paid by the insurance company instead.

After all, the insurance companies are in business to turn a profit, but you need to understand what this means in terms of how much they’ll really be paying you once you sustain a loss. With this in mind, earthquake insurance can be a prime example of where we can have a huge misconception about how much the insurance company will really be paying, whenever a claim is filed for earthquake damage. If you have a policy with a 15% deductible, for example, and it would cost $500,000.00 to rebuild the entire building, you’ll oftentimes need to pay for the first $75,000.00 in damage done to the building by an earthquake. So if the building sustains $75,000.00 in damage from an earthquake, you’ll need to pay that entire amount, as the deductible is calculated as being 15% of the total replacement cost of the building.

Keeping this in mind, something you may want to do is to have a chat with the people in the claims department of your property insurance company, before you ever need to file a claim with them. Run different scenarios by them that could potentially happen to your building, and include scenarios where the building sustains both partial and total damage to it. Ask them questions like, “How much would I be required to pay out of pocket in this situation?”, and “Are there any situations where I’d be required to pay more than my deductible to complete the total cost of the repairs?”

Because if there are any situations where the true cost of doing the repair work is $200,000.00, but the insurance company says that according to their own internal calculations, they will only be paying based upon a cost of $150,000.00 to complete the work, you will definitely want to know this beforehand, and then consider getting a new policy with a different insurance company.

Multifamily Sales On Pace of Reaching Record High for the Year

August 06, 2018/John Doherty

CoStar Analysis Sees Continued Strong Absorption of New Units, Market Fundamentals Softening

Annual U.S. multifamily property sales are approaching a record in the face of a flood of new apartment construction and increasing home ownership, according to CoStar.

Market doomsayers may be confounded by how the new units are being quickly absorbed by renter,s but demand remains unabated across the sector, CoStar’s multifamily analysts
predict in a presentation on the state of the market.

“The multifamily market continues to surprise market watchers,” said Michael Cohen, director of advisory services for CoStar Portfolio Strategy, the company’s advisory arm.
“Expectations that supply would overwhelm demand, expectations that price growth would trail off, both appear to be contrary to what we’re seeing today.”

While data from the second quarter confirms that rent growth has slowed in many markets and vacancy has inched up in places, apartment vacancy for the U.S. market as a whole actually declined 50 basis points in the second quarter, to just under 6 percent.

In addition, average apartment rents rose 3 percent compared to the second quarter of 2017, an increase in the year-over-year rate compared
with the first quarter.

And the average apartment in the U.S. now rents for $1,298 per month, according to CoStar. That’s another increase from the first quarter, but
still well below this cycle’s peak of late 2015, when the average U.S. rent edged toward $1,400 per month.

Taking stock of the second-quarter performance, CoStar’s analysts tied the apartment sector’s success to a favorable overall economic picture
nationally: job growth is high and new households are forming quickly, both of which are driving demand for apartments.

But the multifamily market also benefits from some of the bad news in the economy. Increasing mortgage rates are keeping many renters
from making the jump to home ownership, while a slowdown in single-family home construction has made it even more difficult for firsttime
home buyers, even as homeownership rates edged up slightly.

“This cycle, nearly every marginal household has been a renter household, bringing the home ownership rate down from 69 percent to 63
percent,” said John Affleck, CoStar’s director of analytics. “More recently, however, more and more new households have been buyers, and
the home ownership rate has begun to rise, albeit slowly. Over the last two quarters, the home ownership rate has risen by just .1 percent, a
slower pace than the last two years, and frankly, more slowly than we expected.

“So why aren’t more people buying homes? Rising interest rates and aggressive pricing certainly matter. But are there actually any homes to
buy?” he added.

On the capital markets side, investors have shown strong interest in the apartment sector. Many large institutional investors, including those
outside the U.S., consider U.S. apartment markets to be a good, long-term investment, and have amassed billions to invest in properties

Affleck also predicted the year-end total for apartment sales this year will match or exceed last year’s total of just under $180 billion in trades.​

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