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56% of firms don’t have a dedicated risk manager. How does that impact insurance cost and risk?

NAREIM Asset Management meeting key takeaways

June 9, 2023

More than half of real estate investment managers don’t have a dedicated risk manager at their firm, despite 50% of firms having gone through a large property renewal in the most recent quarter. 

NAREIM members attending the NAREIM Asset Management meeting in NYC on June 8 agreed that firms would be taking on increased risk in the coming months and year thanks to insurance premiums killing deals, loan covenant breaches and the lack of debt financing generally. 

“There needs to be better lender communication,” said one member. “In just one year, people will be taking on even more risk than they are now. You need to start building out that infrastructure internally.”

Presentations & Key Takeaways:

The NAREIM Asset Management meeting was held jointly with meetings for NAREIM's Portfolio Management group and Acquisitions group. More than 110 people gathered in NYC for the meeting on June 8. 

Asset Management:

How to execute on a risk-management strategy

During the meeting, members said it was vital managers take a ‘walk before you run’ approach to adopting a risk management strategy. 

There must be a one- to five-year plan to navigating a high-risk space. This isn’t going to be an afterthought anymore; instead, look at your current team structure and figure out the best ways to:

  • Compile good presentation materials 

  • Have the right support from people in the organization 

  • Understand the firm’s own risk and loss history.

“Don’t miss an opportunity to tell your story,” said one member. “There is a cost-benefit to spending money to travel and meet with the markets in person.”

Other highlights from the meeting included:

  • Values, values, values: Have a clean SOV (with robust property level data and Secondary Modifieds) with pre-modeling completed.

  • Run a dual strategy: Identify what regional carriers might be available for individual properties/specific regions and get quotes outside of master program.

  • How are you rethinking risk at this inflection point? Take on higher deductibles; SIR Funds; Lower limits (specifically on wind/flood); Captives: take some/all your own primary or take some of the most expensive portions of your stack.

  • Approaching the topic of insurance with deal teams: Unpack the “traps” from seller statements (The impression that everyone’s insurance is better than your own); Portfolio makeup, loss history, date of last renewal, limits carried, TIVs, allocation “games”; Proactively presenting market conditions and available benchmarks to IC.

Members also discussed office leasing, multifamily expenses as well as technology. Among the key takeaways were:

Push the boundaries with office amenities:

  • Stray away from just “checking off a box” and think about the experience of the end user. “Those days of leasing a building up just by taking care of it is over,” said one attendee. How can an older building still compete with newer builds on the market?

  • Most effective amenities: social gathering spaces, gyms, conference rooms, parking

  • Least effective: concierge services, pet rooms

Be creative with reducing multifamily expenses: 

  • Look for the opportunity to implement umbrella coverage for insurance to spread across your portfolio or lock in fixed rates with natural gas or electric companies serving your buildings.

  • Install individual boilers in each unit to shift water cost responsibility from the landlord to tenant.

  • Focus on keeping your tenants in place. “We rather only raise rents $50 and keep our tenants, than increase it too much where they leave. Then you could end up losing $10,000 instead and that ongoing cash flow,” said an attendee.

Identify your tech champion: 

  • While most firms might not have dedicated technology personnel, managers can better engage stakeholders from the beginning of the process and carve out who and what that role looks like.

  • 75% of managers are currently using tenant engagement apps and measure success by usage.

  • Crafting a successful tech team and strategy comes down to more than just assigning a member of IT to do the job.

  • Approval process for tech implementation is like “climbing Mount Everest,” said one attendee. “It ends up being easier to use a third party and then you can usually find a loophole and get it done.”

  • Repeat, repeat, repeat: Consistently inform your team on what you’re working on and the end goals of the firm. What data are we collecting? What do we need this data for? How can it lead to better decision-making?

  • Be passionate about a product or technology to make it worth going up the chain for approval.

Presentations & Key Takeaways:

The NAREIM Asset Management meeting was held jointly with meetings for NAREIM's Portfolio Management group and Acquisitions group. More than 110 people gathered in NYC for the meeting on June 8. 

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