In the Spring 2024 Investor Sentiment Survey conducted by RCN Capital, insurance challenges have emerged as a significant worry for real estate investors, hampering deals and diminishing opportunities.
Firms are increasingly compelled to relinquish deals due to soaring insurance costs, shedding light on a broader concern within the industry. Brennen Degner, Managing Partner and co-founder of DB Capital Management, which holds around 3,000 units across Texas, Colorado, Utah, and Nevada, conveyed to GlobeSt.com that insurance rate volatility has significantly impacted their deals, both new and existing.
Degner recounted a case in Denver where his company had to reassess its exit strategy in light of a threefold surge in insurance expenses. This narrative is reflective of the sentiments shared by over 68% of investors surveyed, who cited rising insurance costs or a lack of coverage availability as decisive factors influencing their real estate transactions.
Eric Brody, Managing Partner at ANAX Real Estate Partners, echoed these concerns, highlighting the arduous process of securing insurance coverage as a primary challenge faced by his firm. Sean Kent, Senior Vice President at FS Insurance Brokers, pointed out the unpredictability associated with underwriting deals, particularly in states like Florida, Georgia, and California, where natural disasters like hurricanes and wildfires are prevalent.
According to Michael L. Webb, Counsel for Real Estate at Farrell Fritz in New York, escalating insurance expenses exacerbate already adverse market conditions, prompting developers and investors to reconsider their investment strategies. While Alan R. Hammer, Esq., of Brach Eichler, acknowledged a noticeable uptick in insurance costs, he suggested it was not alarmingly high.
The survey indicated a nuanced perspective among investors, with fewer respondents viewing current conditions favorably compared to the previous year. However, optimism for future market conditions prevailed, hinting at a cautious yet hopeful outlook among investors.
Rick Sharga, CEO of CJ Patrick Company, interpreted the findings as potentially indicative of broader challenges in the real estate market, especially in states like California and Florida.
Nick Balzano, General Manager of New Western’s Tampa office, emphasized flood insurance as a major obstacle for investors, underscoring its deterrent effect on property acquisition. Balzano noted that while flood insurance poses a significant hurdle, feedback regarding property insurance itself has not emerged as a major concern among investors acquiring distressed inventory.
