In a climate where multifamily construction costs are rapidly evolving, Crescent Insurance Advisers brings to the forefront crucial numerical data, informing property owners of the imperative to align their insurance coverage with current market realities of construction costs. This approach is essential to safeguard investments against unforeseen circumstances.
Besides being important to the integrity of the insurance solution to have accurate limits, insurance underwriters are paying close attention to the price per square foot being submitted. Having limits below their standards will reflect poorly on the entire submission and reduce the chances they will give their best available terms.
Market Conditions & Insights from 2023 and Projected to 2024:
Construction Costs: The construction of apartment complexes involves significant expenses, including hard and soft costs. These costs are influenced by location, material choices, and labor costs. For insurers and developers, it’s vital to regularly reassess these factors to ensure insurance coverage reflects the true replacement costs.
* To determine the cost of a specific location, we advise checking with a local builder or architect with experience estimating building costs.
Average Construction Costs: The average cost of constructing a multifamily property is approximately $398 per square foot. This highlights the necessity for insurance policies that reflect these substantial investment figures.
Type-Specific Construction Costs: Tailoring insurance coverage to the specific type of apartment complex is essential based on these cost implications:
High-rise apartment complexes: $270 – $675 per square foot.
Mid-rise apartment complexes: $180 – $270 per square foot.
Low-rise apartment complexes: Costs vary, typically lower than high-rises.
Hard vs. Soft Costs: Hard costs (direct construction expenses) are a major portion of the budget, while soft costs (including legal, permits, and architectural fees) also form a significant part of overall expenses. Insurance coverage needs to be comprehensive, covering both these cost categories.
Location-Driven Cost Variations: Construction costs vary significantly by location due to differences in land prices, local regulations, and market demand. For instance, urban areas typically have higher land costs than rural areas. This variance must be reflected in insurance policies.
Material and Labor Cost Fluctuations: There’s a reported increase in material costs by 2-6% and labor costs by 3-5%, and this also can be location driven. Insurance policies should be reviewed and adjusted regularly to align with these fluctuations.
Professional Service Fees: Fees for architects and engineers usually range from 5-15% of the total construction cost, emphasizing the need for insurance that covers risks associated with these professional services.
Construction Timeline and Risk: With 75% of projects taking over 13 months to complete, insurance must cover extended timelines and associated risks – particularly when determining limits for Business Interruption coverage (aka Loss of Rental Income)
Managing Unexpected Costs: Effective insurance coverage is vital for mitigating unforeseen circumstances that lead to financial risks in construction projects. Given these unprecedented market conditions, we highly recommend starting the renewal process for your risk management portfolio at least 120 days in advance of the renewal.
Crescent Insurance Advisers’ Data-Driven Approach:
Our Habitational Team is anchored in the understanding that current and accurate data is key to effective insurance coverage. Crescent Insurance Advisers is committed to providing property owners with insurance solutions that are responsive to these data trends, ensuring comprehensive protection in an evolving market.
Comprehensive Team Approach using Data Insights and Industry Knowledge:
How do construction cost changes influence insurance needs?
The evolving costs directly impact the replacement value of properties, necessitating insurance policies that are reflective of these current market values.
Why is revising insurance policies critical in the current market?
Given the significant financial investment and the variability of construction costs, adequate insurance is crucial for protecting the profitability of an apartment complex, ensuring that investments are safeguarded against unforeseen damages and liabilities.
Partner with Crescent Insurance Advisers for Data-Informed Insurance Solutions
In the fluctuating realm of multifamily property construction, Crescent Insurance Advisers stands as a beacon of data-informed insights and tailored insurance solutions. Align your insurance with the latest construction cost trends and protect your investment with Crescent Insurance Advisers.