Increasing Insurance Costs Could Lead to Apartment Sales and Threaten New Construction
Apartment owners have faced significant cost increases over the past year, including property taxes, utility, and labor costs, and increased insurance costs. These costs could make owning an apartment unsustainable, as some owners may be forced to sell their properties. Insurance price hikes also make underwriting for transactions and new developments more difficult.
For example, Venkat Avasarala, founder of Dallas-based Stryker Properties, sold 3,100 units of mostly older properties in September 2021, but he remains active at industry conferences and searching for new deals. In some cases, owners stretched thin by premium increases may have other options, even if they aren’t necessarily palatable. Ric Campo, CEO of Houston-based apartment REIT Camden, believes that pressure on owners to sell will put more pressure on them to sell. However, other factors, such as a lot of supply and multifamily supply, also need to come into play to force an owner to sell.
Transacting in a market with steep increases isn’t easy, as rising premiums can kill deals because buyers have difficulty getting coverage. If deals do get done, buyers will get a discount to account for higher premiums, and the pricing will be reflective of what the cost is from an insurance perspective.
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