Rising Insurance Rates Yet Another Storm For Multifamily Investors To Weather

Multifamily properties experienced unprecedented growth in 2022, according to the U.S. Census Bureau. It was the best year for multifamily housing investors since 1985-86. 

But the slowdown in 2023 has begun in earnest, and it’s not just high-interest rates and inflation that are bringing the sector to a halt.

According to NASDAQ, real estate investment trust (REIT) growth is being slammed by bad debt, a lack of rental relief payments this year, utility and maintenance costs and skyrocketing insurance fees.

RREAF Holdings CEO Kip Sowden, who has been in the real estate business for over 34 years, says that some of his properties are getting slammed by insurance rate hikes.

“Our 15,000 units and $4 billion in assets under management give us favorable rates, but a lot of our portfolio is coastal, and insurance rates for those properties are very high,” he told Benzinga. 

Sowden said storms and hurricanes have prompted insurance rate increases. “Even our properties in Texas and Oklahoma are high because of ice storms, hail and tornadoes. Across the entire spectrum, insurance costs have risen significantly in the last 12 months.”

But he adds that anyone investing in the volatile 2023 multifamily environment should be aware of several conditions affecting rates of return. 

“Not just insurance, but from an underwriting standpoint, you also have to really focus on taxes and interest rates, which are still key and a driving force in valuations,” Sowden said. “All are higher than they were a year ago.” 

Meanwhile, backing Sowden’s concern for rising insurance rates in coastal areas, Yardi Matrix reports that insurance rates in Florida are expected to increase by 45% to 50%, and “a doubling of premiums won’t be out of the question.” Yardi also agrees with Sowden that hikes are being applied to inland areas like Texas for all types of weather-related occurrences. For example, Hurricane Ian’s Florida rampage last year caused $50 billion in damage.

“Weather-related payouts have left some insurers insolvent, while others are avoiding high-risk states. The maneuvering translates into higher rates and less coverage for property owners,” Yardi Matrix Director of Research Paul Fiorilla said in the report. 

Sowden added that investors can’t count on insurance rates going down anytime soon, if at all. “It’s the new normal. Those companies that can produce volume properties and spread risk are the ones who will get better pricing.” 

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