If you own a vacant commercial property like a retail shopping center, office building, industrial building, etc., be really careful when it comes to your property insurance. There are limitations with coverage.
By definition, a building is considered vacant unless at least 31% of its total square footage is rented to a lessee or sub-lessee and used by the lessee or sub-lessee to conduct its customary operations.
Typically, insurance carriers will not pay for any loss or damage caused by any of the following, even if they are Covered Causes of Loss if the building where loss or damage occurs has been “vacant” for more than 60 consecutive days before that loss or damage occurs:
- Sprinkler Leakage, unless you have protected the system against freezing;
- Building glass breakage;
- Discharge or leakage of water;
- Theft; or
- Attempted theft
With respect to Covered Causes of Loss other than those listed in Paragraphs (1) through (6) above, an insurance carrier will reduce the amount they would otherwise pay for the loss or damage by 15%.
If you own a commercial building which is currently vacant, or if you know you will be losing a tenant soon, the first thing you should do is contact your insurance broker to see what options are available before you secure a new tenant.
Construction material costs increased by 7.4% in September compared to the same month in 2017, according to an Associated General Contractors of America (AGC) analysis of U.S. Labor Department data. In the past year, tariffs have caused producer price index increases of 29.3% for diesel fuel, 22.1% for steel pipe and tubing and 11.7% for fabricated structural metal, among other cost increases. Over the past year, contractors increased their construction fees for nonresidential properties by 3.5%, which indicates firms are absorbing increased costs, according to the report. Additionally, 80% of respondents to an AGC August survey reported difficulty filling hourly worker positions, resulting in 62% of firms paying higher salaries to attract and retain workers.
What does this mean for my Commercial Building Insurance policy?
If you own a commercial building, whether it be an apartment, industrial, office, or retail building, you should pay close attention to the Building insurance limit you have on the policy.
Perhaps you secured a policy years ago and haven’t looked at it in a long time. Or, have no idea how much you should be insuring your building for in the event of a fire, or earthquake.
Our economy is cranking right now. Contractors have more jobs than they know what to do with. Their employees are in high demand and they need to pay high salaries to keep their talent. More demand equals higher costs.
This isn’t 2009 when contractors were begging for work and you could basically name a price when hiring them for a job. They are busy and selective on which jobs they choose in today’s economy.
From what we’re hearing from Southern California based general contractors right now, their costs for material and labor are at least $300-$400 per square foot to build. So if you have a 20,000 square foot commercial building, you should probably be insuring that for at least $6M Replacement Cost value (20,000 x $300 per sq/ ft).
My suggestion is that you dig up your commercial building insurance policy and check what limits of insurance you have for the building coverage. If you’re severely underinsured, call your commercial insurance agent/broker and ask them what it would cost to endorse your policy with the limits suggested above. You’ll be happy you did if you suffer a loss in the coming day/week/month/year.
Growth in online grocery sales could increase demand for industrial cold storage space, causing 35 million square feet of cold storage to shift from retail locations, according to a report by CBRE. Online purchases will make up 13% of all grocery sales by 2024, the report states. California would likely have the most industrial cold storage at nearly 400 million cubic feet.
Industrial building owners and investors take note!
On Tuesday I visited clients burned commercial industrial warehouse building in Carson, CA which was severely damaged by a fire several months back. Things are currently going through the long slow process of city permits to re-build and our carrier hashing out the claims details with the tenant’s carrier to get the insurance claim adjusted. We’ll be writing a Builders Risk insurance policy to take care of this bad boy and get it back in shape and operational again. Here are pictures of the damage to this industrial warehouse building:
I post pictures of commercial buildings that I insure often here on my site. Of all the various commercial insurance risks I write, my favorite are commercial buildings, whether it be apartment complexes, retail strip malls, warehouses, or office buildings. I’d definitely consider it my main niche. I know all the best carriers for these and the appropriate coverage needed for building owners.
This is a building I insure in Lynwood, CA.
The owner was referred to me by a local banker in Palos Verdes a few years ago. They were in a rush to get the building insured practically on the spot to close a loan. As you can see, Taco Bell is the tenant of the building. The building is in beautiful shape and totally renovated. This allowed me to get coverage in place the same day.
It’s not a big flashy skyscraper, but it’s nice when you drive around town and see various businesses and properties that you insure.
The owner of this building and the banker who referred me couldn’t have been happier when we wrote this several years ago. We just renewed the property & general liability package policy in March. And hopefully we’ll be renewing for years to come representing the building owner.
This morning I finalized the Property & Liability insurance for this fine 55,048 square foot commercial warehouse building in Compton. Escrow set to close by Friday.
Commercial buildings are a specialty for me whether office, apartment, or manufacturing/warehouse facilities. They’re definitely my favorite niche to write.