April 2023 Insurance

April 1, 2023

The number one issue facing apartment owners along the Gulf Coast right now is the rising cost of insurance. We are seeing renewal quotes ranging from $1,500 per unit to as high as $4,000 per unit depending on the age of the buildings and distance from the coast.  The problem is that so many insurance companies have pulled out of the market that there is very limited capacity (supply), and the number of properties (demand), significantly exceeds that capacity.  To make matters worse, the older your property, the fewer the companies that will quote it, and the higher the premium will be.

Here are a couple of guidelines to help you prepare for your renewal:

If your property was built 2015 or later, congratulations!  This seems to be the sweet spot and you will have more options.  Budget 1.5 to 2 percent of replacement costs for your annual premium. I should mention that they are calculating replacement costs at $130 to $140 per square foot.  This means you could see premiums between $1,600 and $2,400 per unit.

At the other end of the spectrum, if your property was built between 1980 and 1995, you should budget between 2.25 and 2.5 percent of replacement value.  This means you could see annual premiums between $2,500 and $3,000 per unit.

As you know, there are a lot of other factors that go into it, and I am not an insurance broker.  I am just a commercial real estate investment broker who sells a lot of apartment properties and I am sharing what I am seeing in the market.

It is now more important than ever to make sure you are maximizing your effective rents. More than 80% of the properties I analyze have below market rents.  We have seen double digit increases in rents along the MS Gulf Coast each of the past 2 years.  During the past 12 months alone, average effective rents have increased by 14.04%.  Below are some statistics for the MS Gulf Coast as of February, 2023.  We will be adding South Alabama stats in the coming few months so don’t go away.

CategoryAverage Eff. RentAverage Eff. Rent PSF
Class A$1,224$1.20
Class B$1,046$1.01
Class C$819$1.00

Here is a breakdown by the property’s age.

Built InAverage Eff. RentAverage Eff. Rent PSF

In addition to making sure their rents are at market or better, many of the owners we work with are eliminating their debt, when possible, and self-insuring for wind.  Let’s face it, with deductibles so high, you will likely be replacing your own roofs even if you are insured for wind.

Thank you for taking the time to read our first Multifamily Market Minute. We welcome your comments, questions, or future topic ideas. Feel free to forward this to anyone who you feel may be interested in this information.  The Molyneaux Group exists to help real estate investors maximize their investment returns while minimizing their risk.