CRE’s Other Headache: Insurance

Good morning,

CRE’s other headache: insurance; Florida’s new housing law tests local control; and government shutdown looms despite negotiations. Let’s delve into today’s topics.

📈 Market Update

⛈️ CRE’s Other Headache: Insurance

Commercial property owners face exploding insurance premiums, with costs rising 7.6% annually since 2017, wiping out profits and making deals economically unfeasible. Hard-hit cities like Dallas, Houston, and Los Angeles have seen double-digit annual increases, especially for multifamily buildings. Intensifying natural disasters, inflation driving up rebuilding costs, and a shrinking reinsurance market are key factors. Owners seek higher deductibles or lower coverage amounts, but lenders often demand full replacement cost coverage. The squeeze is another hurdle atop high vacancies and interest rates.

🏖️ Florida's New Housing Law Tests Local Control

A new Florida law intended to promote affordable housing is empowering developers to build taller residential towers, overriding local zoning restrictions. In Miami Beach, plans for a 30-story tower with 40% affordable units on Ocean Drive is drawing backlash from the mayor and others who say it would ruin the area's character. But the developer can seek expedited approvals under the law, cutting the process in half. Cities like Doral have enacted temporary moratoriums to halt development while they review how to implement the law. If approved, the Miami Beach tower would be an early test case of the law's power to advance affordable housing projects despite local opposition.

Major Mixed-Use Project Planned for Miami Health District:
Developers Black Salmon and Allen Morris are planning a $1B mixed-use project on 7 acres in Miami's Health District, with 500,000 square feet of medical office, 1,000 apartments, a 150-key hotel, retail and green space in multiple buildings up to 22 stories tall. The transit-oriented development near Metrorail will be built in phases over 10 years after assembling 50 properties for $60M. The joint venture tapped Arquitectonica for design and is going through entitlements, with plans to break ground in 2023.

🏦 Government Shutdown Looms Despite Negotiations

The US government faces a potential shutdown on October 1 as Congress struggles to pass a funding bill, though a short-term deal may emerge. The Senate is nearing agreement on a stopgap measure to temporarily extend funding, but it lacks support in the House where Speaker McCarthy faces pressure from conservatives. Moderate House Republicans could join with Democrats to force a vote on a bipartisan funding bill, but that process takes time. A shutdown seems inevitable, though it may be brief if a compromise is reached. The turmoil highlights political divides and fiscal uncertainty in Washington.

✍️ Further Reading

• VanEck’s New Contrarian Office Fund Hits Immediate Bump (CS)

• Billionaires Bank on Multifamily Market (RD)

• World’s Mega-Rich Are Betting on US Renters to Grow Their Billions (BBG)

• Unibail Seeks To Add Roughly 1,400 Housing Units to New Jersey Flagship Mall (CS)

• How Rising Interest Is Affecting Floating Rate Refis (GS)

• Analyst: Multifamily Rent Growth Will Return to Historical Norms (GS)

• $1B Austin Mall Makeover Gets Key Approval (CPE)

📊 Chart of The Day