What are you doing to cut insurance expenses? Raising your deductibles? Paring back coverage? Shopping carriers? Increasing rents?

Chances are, you’re doing all the above. Multifamily property insurance rates are surging. “Some carriers are leaving the market entirely. If they stay, they cherry-pick best-in-class portfolios and raise rates,” says Garrett Maloney, vice president at TBM Multifamily, a national insurance brokerage.

What’s an NOI-minded multifamily owner or operator supposed to do?

Ryan Bedford has an idea: It’s a premium mitigation strategy the Wisconsin-based owner and operator of Bedford Development has baked into his 72-unit garden apartment community, now under construction in a Milwaukee suburb.

“Insurance premiums continue to grow. It’s one of those things most people accept. A property owner isn’t likely to sell an asset over an insurance premium. It’s just absorbed,” Bedford says.

Acceptance isn’t part of Bedford’s pro forma strategy. He permanently tabled that discussion by building three two-story apartment buildings with a four-hour fire rating.

Less Risk = Less Expense

“Insurance premiums for fire-resistant structures aren’t going up,” Bedford reports. “The premium is less because the risk is less. Even risk from water damage is way less.”

Bedford’s premium-busting solution is insulated concrete forms (ICF). ICF is a wall system formed by stacking foam-framed blocks Lego-like to create a cast-in-place concrete wall. Bedford and his general contractor are also testing off-site ICF construction to see which approach is more efficient.

In many respects, ICF is an insurance underwriter’s dream. Industry sources suggest a few reasons why:

• ICF walls resist flame and temperatures up to 2,000 degrees Fahrenheit for as long as four hours. Structural concrete won’t weaken, warp, twist, or burn regardless of a fire’s heat.
• ICF walls withstand sustained wind speeds in excess of 200 mph.
• ICF walls can be designed to be up to 8.5 times stronger than standard framed structures.

Bedford did price out framed modular through his general contractor. He was surprised to learn “… the price was significantly higher than ICF.” Bedford passed on standard stick-frame construction because of material and insurance uncertainty.

Win-Win for Owners and Tenants

ICF construction is used for all exterior and demising walls. Tenants will quickly appreciate the acoustical benefit of silence. ICF earns a 55 STC rating versus a standard framed structure’s 38 STC rating.

Bedford believes his new community will compete well. It’s market rate, though priced aggressively to attract quality workforce renters. Throw in heated underground parking, keyless access, an amenity-rich neighborhood, a utility bill a fraction of the expected, and the new micro hospital next door, and you have the makings of long-term tenant relationships.

That suits Bedford just fine. “We’re not in this to flip it. This is a hold-onto project. It’s one you want to keep in your back pocket forever.” Consider the insurance discount as a bonus annuity.

Source: Multifamily Executive

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