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Ask The Expert Featured News

Ask the Expert: How Can CRE Owners Receive the Most Favorable Outcomes when Refinancing?

Are you curious as to how refinancing could affect your insurance?

Franklin Street’s Ryan Cassidy, Managing Director of Insurance Services, explains how CRE owners can achieve the most favorable results when refinancing their property in the below Ask the Expert video:

For the latest in expert insights, visit the Franklin Street Information Exchange.

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Ask The Expert

Ask the Expert: What are the 5 Biggest Insurance Challenges for Multifamily Owners in 2021?

Franklin Street’s Insurance Director, Michael Shadeed, offers insight on the 5 biggest insurance challenges for multifamily owners in 2021. For the latest in expert insights, visit the Franklin Street Information Exchange.
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Ask The Expert Featured News

Ask the Expert: What Insurance Lessons can Property Owners Learn from “The Big Game?”

It’s called “The Big Game” for a reason – it’s the largest sporting event in America. In a normal year, not affected by a pandemic, the NFL’s grand finale, along with the dozens of events leading up to it, can draw upwards of half a million people combined.

With so many attendees in environments that are often temporary, quickly constructed and not completely secured, the big game is also the mothership of event risk exposure when it comes to insurance. We can expect general liability coverage needs for game day to exceed $100 million in coverage limit, with additional coverage needed to address media liability, property, coverage for sponsors of co-branded events, event cancellation and other risks.  

Real estate owners and property managers who routinely host events at their properties can learn valuable lessons from what it takes to insure such a massive and complex occasion. Whether your event attracts thousands or hundreds, many of the same risks exist.

For example, temporary structures such as tents and stages create significant liability, as injury caused by such structures is one of the most widespread claims at large events. When organizing events, it’s important to address all potential health and safety risks for attendees, staff and players / performers. Slip and fall risks are always present, but COVID-19 added another critical layer to the medical risks involved with hosting events. Coverage for the spread of communicable diseases is becoming more common, and it will certainly be interesting to see how the NFL handles this matter.

Unfortunately, terrorism and rioting risks have also become more of a concern over the last year. All large events should be accounting for this type of exposure for the foreseeable future.

Of course, when organizing a large-scale event, there should always be a plan for controlling and mitigating these exposures from the start. For those risks that just can’t be avoided, having the right coverage in place could help save you millions.

Michael Shadeed, Senior Director, Insurances Services

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Ask The Expert Featured News

Ask The Expert: Are Insurance Premiums Expected To Continue Increasing For Commercial Real Estate In 2021 & What Options Are Available To Mitigate The Impact?

Unfortunately insurance premiums for the real estate sector are expected to continue increasing in 2021.  There are 4 primary reasons for the continued “Hard Market”, which is the upturn in an insurance market cycle when premiums are increasing and capacity for coverage is decreasing.  Although all sectors of commercial real estate will feel the impact of the continued hard market in 2021, it’s expected to have the greatest impact on multifamily and hospitability.

First, we were at a very low point for insurance rates as we had previously been in an extremely soft market cycle where we experienced compounded rate decreases from 2006 to 2016.  Despite the recent rate increases over the past few years, we are still at a low point compared to where rates were in 2006.  Second, we have seen much higher loss activity in recent years with record breaking hurricane seasons, wildfires, convective storms, social inflation, and now the impact of Covid-19.  To put this in perspective, 2017, 2018, and 2019 were three of the four worst years for CAT losses on record.  Third, is that interest rates are at a record low point now and will continue to be for the foreseeable future.  Since carriers rely on the “float” of investment income, the low interest rates further diminish their profitability.  In other words, much of the rate increases charged have been offset by the lowering of interest rates.  Last is the uncertainty of the impact of Covid-19 related claims.  Although these claims won’t materialize for some time, industry experts are projecting these claims could reach as much as $100 billion.

Although the reasons for this continued hard market are outside of our control, there are options available for owners to help mitigate the impact.  Focusing on improved underwriting data of the assets, sharing of operational and risk management best practices, creative program structures, and increasing retentions when beneficial are all examples of strategies to improve results in this market.

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Ask The Expert Featured News

Ask the Expert: How Did COVID-19 Re-enforce Our Decision to Use Technology to Better Serve Our Residents and Teammates?

Franklin Street began using Yardi Rent Café in 2017 to enable future residents to apply online but also let current residents pay their rent and submit workorders 24hrs a day and not be reliant on the office needing to be open. So when we needed to close our leasing offices to outside traffic due to COVID-19, operationally we were still able to run applications for potential new tenants as well as provide services to our current residents while maintaining a touch-free environment and protecting them and our teammates.

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Ask The Expert: What are your CRE & Debt Financing consideration & expectations in 2021?

What a ride 2020 has been.

In the middle of the first quarter of 2020, two unforeseen events occurred – the global oil price war and Covid-19. This economic shock will continue throughout next year as the world clambers towards some form of normalcy.

Despite the obvious negative effects across all asset types, with a particular focus on hospitality and retail centers, the overall level of CRE debt has still remained buoyant. Underpinning this has been the significant reduction in interest rates thanks to accommodating monetary policy from the Federal Reserve.

So what are the issues going into next year? Leasing concessions will hopefully have ended but bottom lines will hurt. The vacancies created by expiring businesses will also need to be filled and the NOI reduction as a result may cause payment delinquencies and foreclosure on the severe end, and lower loan proceeds on the other due to DSCR constraints.

While commercial lending is back on after a great tightening across many assets types, many local and regional banks have been suffering from default shock between their commercial lending and small business platforms. This has caused a tightening in risk appetite and has caused LTV’s to drop, and in some, caused a complete cessation of lending to a variety of asset classes until the fog clears. Many lenders will continue to ask for 6-12 months of principle and interest reserves in all the deals they finance.

And yet, the Mortgage Banker Association forecasts commercial and multifamily bankers will still close a considerable amount CRE loans backed by income producing properties this year, up by 9% from an estimated 13% borrowing volume in 2019. Multifamily, Medical offices and Data Centers are all expected to present as growth opportunities. This environment, where yesterday’s top performing lender are no longer today’s ‘go-to’, has caused an important reliance on debt brokers. This uncertainty has created opportunity and 2021 will prove out have a strong runway into brokered deals.

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Ask The Expert COVID-19 Trends

Ask the Expert: In Today’s Current COVID-19 Environment, Do You Hold or Do You Sell Your Retail Asset?

Ask the Expert: In today’s current COVID-19 environment, do you hold or do you sell your retail asset?

It depends on the retail asset class. Single Tenant (NNN) net lease asset cap rates will continue to hold and for certain tenants you could see further cap rate compression. If you have a credit tenant with several years left on the lease it may make sense to hold. All essential retail uses, (drug stores, dollar stores, convenience/gas) will be leading the way in the NNN lease arena. Compressed cap rates could mean better pricing for sellers but finding the next upleg trade property may prove to be difficult since they are in high demand. Uncertainty lies within the multi-tenant strip retail and larger big box (Power) centers. The net operating income (NOI) for the multi-tenant assets is a moving target today, so buyers will be looking for discounts in this space. Seller’s, however, have not adjusted yet to what will certainly be post-COVID-19 pricing. If there is additional tenant fallout or consolidation, over the next twelve months, which is likely, the market will start to see pricing shift and cap rates can be expected to continue to increase for this retail asset class. We have advised specific clients who own multi-tenant assets to take what pricing is on the table now versus waiting six to twelve months in hopes that the economy or pricing improves down the road.

John Tennant
Senior Director
John.Tennant@FranklinSt.com

404.832.1250
Ext. 0409

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Ask The Expert COVID-19

Ask the Expert: How Has The Market Sentiment Changed Over the Last 90 Days and How are Equity Providers Feeling

Ask the Expert: Ask the Expert: How Has The Market Sentiment Changed Over the Last 90 Days and How

Ask the Expert: Ask the Expert: How Has The Market Sentiment Changed Over the Last 90 Days and How are Equity Providers Feeling About Beginning to Invest Again?

90 days ago equity capital was looking for opportunity.  Institutional investors had been successfully raising equity for the promise of mid teen returns and 1.6+ multiples.  Acquisitions and ground up development were getting serious looks from those fund managers looking to put their bundled capital to work in a strong market. With low vacancies and few issues, 2020 would be a great year for investors and there was more on the horizon.

Then COVID-19 hit.  The market took a collective pause and for the next 75 days sat on its hands and waited.  They waited to see where this was going, how severe it would be and what property types would be the most and least affected. Pending deals were sometimes put on hold or dropped altogether and nobody had a solution.

Over the next 2 months the bad news continued to chill any appetite for investors to invest.  Some were and are holding capital for distressed assets, others just stopped investing wondering how long before the market would try to make a comeback.  Senior Housing, Retail, Hospitality, and ancillary services like paid parking, public events, schools and gathering and sports facilities were closing down with little or no end in sight.

Now we know much more about the virus, its characteristics and contagiousness.  There’s light at the end of the tunnel for many property types.  Multifamily is still going strong with both acquisitions and ground up development getting serious looks from equity capital.  Atlanta landlords report high occupancy and very low delinquencies.  Office properties are also getting strong interest from equity.  Hospitality, Senior living and Retail are struggling to get back to favor as senior COVID deaths and limited non-essential travel cause Airlines woes, hotel closures and retail bankruptcies. But there’s still demand for opportunities.  Investment groups are sitting on a lot of cash and for investment managers to get paid well, they need to invest.  Many are more cautious today and rightfully so. Nevertheless, most think we are through the worst of this which maybe was the unknown, and are looking to stronger demand and opportunity for the 3rd and 4th quarter of 2020 and high expectations for 2021. Given that deals like that take time to put together many investors and working diligently now to focus their equity capital on strong sponsors who have relevant expertise and control a site or property in a good market.

Bob Boyd
Director, Franklin Street Capital Advisors
Bob.Boyd@FranklinSt.com
404.832.1250
Ext. 0450

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Ask The Expert COVID-19

Ask the Expert: How has COVID-19 impacted commercial real estate construction projects?

Ask the Expert: How has COVID-19 impacted commercial real estate construction projects?

Although most states have deemed construction an “essential” business, there are four (4) major development unknowns: (1) regulatory approval timeframes, (2) banking, (3) availability of materials, and (4) availability of workers.

Most construction projects that are currently underway and still progressing as scheduled. However, local authorities having jurisdiction are not and that is causing much of the delays. Permitting offices are closed, plan reviewers don’t have remote access abilities, site inspectors are advised to stay at home, etc. Many of these government offices are allowing the use of third-party plan reviewers and inspections. There is a process in getting these services approved with each local authority, but once approved, the overall schedule should be expedited due to shorter permitting periods and same-day site inspections.

The second unknown is the banking industry. They seem to be in a holding pattern to see what happens, which is of course preventing the larger construction project from breaking ground. This has been the single biggest delay to the construction industry. There have been a handful of banking groups that are providing the much-needed relief to keep these projects progressing, but the longer-term viability is certainly of concern.

The final two (2) unknowns are the availability of materials and workers, i.e. the main drivers of construction costs. Most think with this pandemic that construction costs will immediately drop. Prior to this pandemic, the pipelines were robust and plentiful. Those pipelines did not go anywhere and for the most part, are being continuing into construction. However, the long-term effect is unknown. Today, material is still in high demand and there is still a shorter of skilled laborers, i.e. construction costs are will remain high. Trends are showing that Q3 and Q4 of 2020 may tell a different story. Pipelines are not filling at the same pace as they were prior to the pandemic. This should open the availability for skilled laborers allowing construction costs to come off their peak. The biggest unknown is materials, especially materials coming from China and from factories that were closed during the pandemic.


Nick Sanfilippo
Senior Vice President
Franklin Street Project Management
Nick.Sanfilippo@franklinst.com
O: 404.649.6277    

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Ask The Expert

Ask The Expert: How are CRE portfolios being effected by the insurance market?

Ask The Expert: How are commercial real estate portfolios currently being effected by the insurance market?

“In Q1 of 2019, we began to see a significant shift in the insurance marketplace for real estate portfolios, multifamily being hit the hardest. Similar to other financial markets, the insurance marketplace goes in cycles. Unfortunately for commercial property owners, this happens to be the most challenging part of that cycle.

Adjusted for inflation, 2017 marked the lowest insurance pricing for real estate owners over a 15 year period. At that time, insurance companies were fighting to maintain market share, which led to significant underpricing across the real estate sector. Many of the major players were barely operating at a profit due to attritional losses (hail, fire, water damage, etc.), perils which can either be difficult, or nearly impossible to forecast. This situation, coupled with the hurricane of season of 2017, were the straw that broke the camel’s back.

Many owners who renewed coverage in Q1 or Q2 were able to avoid the market correction in 2019. I would not expect to have such luck in 2020. 

With that said, every situation is unique, and some carriers have maintained stable renewals year over year in certain pockets of the country (This has been limited to a small portion of the multifamily sector). To be safe, the earlier you can start the renewal process, the better.”

Garet Marr
Director
Franklin Street Insurance Services
Garet.Marr@franklinst.com
O: 312.598.2665