Report: Insurance cost can make newer multifamily properties more appealing

By DAN NETTER

Bridgetower Media Newswires

Insurance companies have started to become cautious about insuring certain types of apartment buildings in the Twin Cities metro, according to a new report from Michel Commercial Real Estate presenting a potential issue for multifamily investors looking to get their hands on a more aged product.

The report, a third quarter review of the multifamily market, says the wariness from insurance companies has brought more attention to newer, “high-quality, lower-risk assets” in the metro.

Michel Vice President Heidi Addo said insurance companies are pointing to hailstorms that have befallen Minnesota as the reason for skepticism, though Addo said natural disasters are the more likely reason for companies wanting investors to pay more in insurance premiums.

This has led to more insurance companies being cautious around fires in properties, which has required more owners and operators to replace fuses with circuit breakers and try to figure out how to install sprinkler systems.

“That comes at a cost of $1,200 to $1,500 per unit right away to change fuses and breakers because of fire hazard,” Addo said. “Anything older … was probably not sprinkled. And so are you going to retrofit sprinklers into a 300-unit, 1970s building? That’s an exorbitant cost.”

Addo said though that buyers are not shocked at the trend of raising insurance costs, but that it just needs to be something considered in the underwriting of a property.

The report also clocks the average vacancy rate for multifamily properties at 7.3%, down from this time last year, while the number of units under construction sits at 8,671.

Woodbury continues to command investor attention, as Woodbury Park at City Centre brought in one of the highest price-per-unit sales of the quarter at $242,358. Addo said Woodbury has seen an influx of young professional families with high incomes, resulting in more investor confidence.

This quarter also saw Weidner Apartment Homes continue its expansion, buying up the Blue and Lime Apartments, two properties next door to one another for a combined $80.5 million purchase.

Various types of senior-living properties have proven to be a hot commodity in the Twin Cities metro, as four properties spread throughout the region have commanded some of the highest prices seen in the third quarter.

Two properties brought in Eagan and Ramsey accounted for about $72.6 million worth of sales in the last quarter, according to previous reporting from Finance & Commerce. Affinity at Eagan and Affinity at Ramsey are two active adult properties, which rent to residents 55 years and older though without providing services. Addo said active-adult properties are one that investors have become more interested in.

“It can be a slower lease-up for some of these senior properties, just because it is more of a niche market, you are limiting the renters who can live there on purpose, of being 55+” Addo said. “But once a senior property leases up, it is leased up for a long time. … People want to stay there for a long time.”