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A commercial property is first part of a neighborhood like South Fort Myers; then part of a county like Lee County; and still part of a country like the USA – in other words – its value is tied directly to its surroundings. Only with a thorough knowledge of the entire surroundings can a property manager design a management plan and marketing strategy; establish competitive rent levels; and forecast future cash flows. Variables such as employment, population and income are excellent indicators of economic activity and affect the supply and demand of rental property in an area. The property manager whose opinions are backed by analyses of these variables can judge the highest, best and most productive use for the property over its economic life. There is a common opinion that in real estate there is no national market, rather the market is a mix of smaller local markets – each different from the next. Since this is basically true, property managers must scrutinize each property in relation to local economics. However, transitions in the national economy are felt on local real estate market levels and ultimately affect individual investment decisions. For example, changeable interest rates affect all levels of the economy – the federal posture on interest rates and lenders’ attitudes have an impact on regional as well as local markets. Federal tax laws also dictate some investment decisions. Not all national trends in the economy filter down to all local markets. In nationwide recessions, real estate practitioners in some regions actually fared very well, escaping any serious economic setbacks – while those in other areas were not so lucky. Southwest Florida has been resilient to serious recessions, although we are certainly experiencing a correction in market values now. What does this mean to the property management firm? It means that only a solid knowledge of national economic trends will give the firm’s property managers a complete understanding of their local markets. Federal policies directly affect local market conditions – whether through spending cuts, tax relief or interest ceilings – and the impact of national economic policies has grown. A regional analysis yields an understanding of the economic activity within an area and (to some extent) the effects of supply and demand on a property. Factors that influence the analysis are population, employment and income. Social and legal characteristics are considered too. Information can be gathered from private agencies; government agencies (like the Bureau of Census) which reports population data by census tract. The neighborhood analysis serves as a guide for determining a real estate investment’s potential and helps isolate alternatives for achieving that goal. The regional analysis should take careful note of purchasing power which is influenced by area income levels. Income is the total amount available to the consumer; purchasing power is income less taxes and living expenses or the amount available for nonessential goods, services or savings. Purchasing power has the most direct effect on property value. Other factors that are analyzed would be: • employment trends • the region’s financial stability • transportation and public improvement • recreational and cultural facilities • educational facilities • legal and governmental characteristics Finally, the general real estate supply and demand conditions within a region warrant the property management firm’s attention. The property manager should be able to project the number and volume of real estate transactions; average prices; interest rates and rental rates; and attempt to forecast trends. He/she should examine current supply; volume of construction and the distribution among property types; rent levels and ranges; and vacancy rates by location. A tight market with few vacancies as we have seen in our local market will lead the manager to different conclusions than a region with high vacancy rates. The manager also should investigate construction prospects. A cutback could be the consequence of rising costs such as impact fees, fill costs, insurance, etc. or it could be caused by a sharp decline in demand. The need for analysis should be clear. Because real estate has a fixed location, the characteristics of the location become attributes of the property. To a large extent, the value of a property depends on the features that surround it and the forces that affect it, i.e. value is a function of location.

Besides being familiar with the commercial real estate market in general, a commercial real estate advisor is responsible for knowledge of specific property and safety issues. These issues are critical to the seller/lessor, the buyer/lessee and to the commercial real estate advisor (as the intermediary). The advisor must be aware of the fire and security arrangements for each property. Does the retail facility have a silent alarm? What type of security personnel are employed there? What kind of sprinkler system is installed? Do previous safety or security problems exist? In addition to these common safety issues, also consider these four important concerns: 1) underground storage tanks; 2) the presence of asbestos insulation or fireproofing; 3) electrical transformers containing polychlorinated biphenyls (PCBs); 4) soil and groundwater contamination. Each state has individual legislation regarding regulations of underground tanks and federal law plays a small part in the regulations too. Underground storage tanks present a potential liability for both buyer and seller. The owner of the property will know if there is or has been a tank on the property and it is the duty of the commercial real estate advisor to discover this fact and disclose it to the buyer/lessee. Many building owners over the last two decades, concerned about liability for asbestos-related claims have considered removing all asbestos materials in a building. However, the difficulty in removing asbestos can create even greater risk and liability. Asbestos has been highly regulated over the years. In 1973, regulations were passed banning the use of spray-applied asbestos materials (as building insulation or fireproofing) with the exception of use for equipment and machinery. Buildings that were built before this ban have a potential problem. The EPA’s (Environmental Protection Agency) regulations on asbestos apply to owners and operators of asbestos emission sources. This includes building owners. The face liability from a disclosure standpoint is in selling the property and from a safety standpoint with regards to employees; tenant and maintenance workers. Polychlorinated Biphenyls, commonly known as PCBs, are present in electrical equipment, including capacitors and transformers. Many retail buildings have transformers located in basement or sidewalk vaults or on rooftops. Institutional light fixtures may also contain PCBs. In 1979, the EPA placed restrictions on the use of equipment containing PCBs. Responsibility for compliance with these rules lies with both the owner and the operator of the equipment. The owner of the property on which the equipment is located also can be held responsible. This is significant because transformers owned by an electric utility are often located in or adjacent to the building they serve. Therefore a building owner who merely uses utility-owned transformers or owns property on which they are located may be held liable for any personal injury or property damage resulting from the PCB. There are clear guidelines for the management of soil and groundwater contamination. It is important to keep in mind that hazardous waste is not limited to heavy industrial sites only. Mixed-use facilities; light industrial; warehouse and distribution centers; even parking lots can be areas that have hazardous waste problems. Under existing regulations a landowner may be liable for “unauthorized disposals” of hazardous waste on their property. This includes any discharge; dumping; pouring or spilling; emitting or leaking of any type of waste. The EPA has the authority to order a clean up. A property owner may be responsible for cleanup costs regardless of whether he/she owned the property at the time of the release; knew about the contamination or negligently caused the contamination. Both the seller and buyer may be subject to a cleanup order if the property is contaminated, regardless of who was directly responsible for the contamination. The commercial advisor must remember that potential liabilities may be addressed in the sale or lease contract. However, it’s extremely important to have thoroughly investigated and disclosed the environmental history, condition and use of the property prior to completion of the transaction. Liability for cleanup can be both expensive and retroactive and because of these facts – buyers, sellers, landlords and tenants need to know if there is contamination and to what extent. Without such an assessment, sellers risk liability for any wastes generated by future owners and tenants. Buyers may be responsible for a seller’s or tenant’s contaminations and tenants may be liable for an owner’s or prior tenant’s contamination. Your commercial advisor will take the following steps to protect everyone: 1) He/she will thoroughly investigate the property, its history and current use. 2) Document and disclose everything. 3) Use a restrictive covenant if necessary. A restrictive covenant restrains land uses that may cause harm, such as drilling, excavating and/or building. 4) Determine financial responsibility within the sales agreement (put it in writing). The commercial advisor may allocate costs associated with contamination known at the time of sale, costs associated with contamination existing at the time of sale (but not discovered until later), costs associated with contamination caused by the buyer or successors and costs associated with contamination of uncertain origin. This will not limit the parties’ obligation to the government or third parties. However it will help them understand their obligation to each other. Everyone involved in a commercial transaction relies on the commercial advisor’s ability to structure a transaction that is mutually beneficial to everyone. A good commercial real estate advisor will fulfill this function by having up-to-date knowledge regarding safety and environmental concerns then communicating that information to all parties concerned.

Security is an issue that has many different definitions. For occupants of multi-tenant commercial properties, it’s paramount that they be able to work with as much calm and quiet – free of the threat of outside interference – able to concentrate on the business at hand. Since 9-11, stories of violent incidents that occur without warning appear all too frequently in the newspaper headlines around the world. These are the kinds of incidents that elevate concerns for commercial tenants and owners. The laws of our country are increasingly interpreting security and the right to live and work in peace, as a basic human right. Our legal system is tending to hold that a tenant is entitled to expect that the management of the area in which he/she works must take “reasonable care” to protect them. A smart property management firm understands that in today’s world the superficial treatments that have defined security in the past, are not good enough now and a higher standard is expected. The property manager’s concern is to know what to do about his/her property’s particular security problems. The first step is to make security the top priority in managing the property. The basic approach to solving any security program’s shortcomings is to understand what the exact nature and degree of the problems are, before taking varying protective measures. The solution cannot be found until the problem has been determined. For example, before installing expensive surveillance cameras or securing guard dogs on the premise, know fully the current security situation as well as the viability of the proposed solution. In evaluating the situation the following questions must be answered: 1) What is the crime patterns? 2) What are the tenant profiles of the property? 3) What are the built-in limitations of both the complex and the tenants? 4) What potential resources are available to solve the problem? The property management firm must also be ready with information on types of crimes and the frequency with which they are occurring around a particular property. The police department is usually quite helpful in supplying this information. But in any case, the following information must be determined: 1) the date, time and place of crimes; 2) description of any crimes committed; 3) police action taken and follow-up procedures that were instituted; 4) the name, address, sex and age of the person making the complaint; 5) the name, address, sex and age of the suspect who might have committed the crime. There are basically four components to any security system: 1) hardware; 2) design; 3) manpower 4) management techniques. None of these four are standard. Each commercial building is unique. All four components must be considered when designing a security system for that particular structure. It must be noted that in any existing security system, the change in any one of the components will affect the other three. The first component, hardware presents options which range from the simple deadbolt lock to the elaborate and expensive closed-circuit television system. As an example, let’s look at a simple lock. A key in the door knob with no dead latch would cost approximately $40. per unit. It would take, using brute force, approximately 10 minutes to open it. Another example of a door latch is the key in the door with a cylinder latch. The cost of the cylinder latch is approximately $60. However, using brute force, it would take as long as 50 minutes to open. Again, the effectiveness is directly related to cost. The second component in solving security problems is design of the various parts of the property. Design is important, but sometimes it’s not possible to redesign a part of the property to provide for ideal security. Thus hardware and manpower may be a better substitute. The third component manpower is possibly the most important part of any security system. Tenant surveillance is highly dependent on the sense of responsibility that tenants assume for one another. An example of outside assistance in the area of manpower might be off duty police, K9 patrols or security officers. The advantages of this approach are that personnel would be responsible to management and the patrols would have a certain crime deterring effect. Whether this manpower is in the form of a “tenant watch” group or an outside security company, careful supervision must be provided. Last, the management techniques involved in the solution of security problems begins with seeking cooperation of a large majority of the tenants. If cooperation and understanding are not significantly present, no hardware, design or manpower will be successful. Whether tenants are organized or not they are often willing to help promote their own security. They must realize that they have the largest responsibility for their own protection.

Communicating effectively with people affects every part of our daily lives – both professionally as well as personally. It’s not an intuitive skill. Like our language skills (writing and reading) it requires disciplined study too. It’s extremely important for the property manager, as agent between two parties, to recognize that in dealing with people – each one brings her/his own point of view to the conversation.

Once the owners and the property management company have agreed on principles, objectives and a management plan, it’s in the best interests of both parties to formalize their agreement. The property management company and owner must work out the structure of their relationship regarding fees, specific responsibilities and liabilities, the scope of the manager’s authority, and the duration of the management agreement. In addition, the owner must turn over management records and other pertinent property information to the management company to facilitate the operation of the property. A clear line of communication with the owner is critical throughout the management process. Three basic relationships can exist between a property management company and the individual or corporate owner of a building: some are employer-employee arrangements, some are principal-agent arrangements and a few are formal fiduciary relationships. The employer-employee relationship is most common with banks, universities, large corporate firms and other private institutions that typically require the services of an on-site manager for their properties. The employee-manager is directly responsible to the officers of the owner-employer corporation or institution, which may be the principal occupant of the property. Although no formalized contract is necessary in an employer-employee relationship, the issues set forth in a typical management contract between agent and principal must still be settled. The employee-manager’s working relationship with the owner must be structured along the same lines as that of the property manager who operates as an agent. The principal-agent relationship is created by a written contract signed by both parties, which empowers the property management director, as agent for the owner to act on behalf of the owner, or principal, in certain situations. Implicit in this relationship are certain legal and ethical considerations that the property manager must accord the owner. These considerations are based on the law of agency. An agent has certain duties that are imposed by agency law. This is because an agent has a fiduciary relationship with his or her principal. A fiduciary relationship is a confidential relationship that requires the highest degree of loyalty on the part of the agent. Implicit in this fiduciary relationship are other duties as well, including the duties of loyalty, care, obedience, accounting and disclosure. The duty of loyalty means that the property management company must always put the property owner’s interests first, above his or her own interests. The property management company must act without self-interest. The duty of care requires the property manager to exercise a reasonable degree of skill while managing the property. The duty of obedience means that the property manager must carry out, in good faith, the property owner’s instructions. However, if the property owner requires the property management team to do something that is illegal or unethical, the property management director should immediately terminate the relationship. The duty of accounting requires the management company to accurately report on the status of all funds received on behalf of or from the property owner (such funds are referred to as escrow funds). State real estate licensing laws typically include detailed accounting requirements that must be followed explicitly by the property management company in regard to escrow funds. These laws virtually always prohibit commingling by the property management firm, that is, combining escrow funds with the property management director’s business or personal funds. The duty of disclosure imposes on the property management company the duty to keep the owner fully informed of all material facts regarding the management of the property. While many rights and responsibilities of the agent and the property management company are imposed by agency law, all the property management company’s rights and responsibilities should be spelled out in detail in the property management agreement.

As Director of Property Management for my firm I always look at property, not only for what it is but also for what it could be. An outdated multi-story warehouse could be converted to a modern office building or revamped into a prosperous shopping center. Likewise, a building that appears efficient could have outdated features which (when converted) would make it far more attractive and cost-efficient. However, such transformations come only with effort: among other things, they require foresight; creativity; risk and financing. As an expert in real estate investment strategy, the property management firm looks for alternatives that offer the highest value and still safeguard the investment. The choice ultimately rests on the answer to the question – what is the property’s ideal function, its highest and best use? Highest and best use describes a superlative state for the property and not a comparative one (as in higher or better). The property management team tries to find the use for a property that meets the two explicit criteria, the use that is both the highest and the best. The two criteria go together, but to understand the whole concept, it helps to understand first how the two terms are different. Highest Use. The highest use is a term based on economic factors. It suggests that the success of an investment is purely in financial terms. Each investor has a different idea of what a property’s highest use should be – because each investor has a different expectation of the return from an investment. Best Use. The best use transcends dollar considerations. It refers to sociopolitical factors that make one use more appropriate than another. This consideration is also subjective. The highest use of a real estate property may not be its best use and the best use is not necessarily its highest. Imagine a large tract of beautiful wooded land divided by a babbling brook. The setting might seem best for scattered, prestigious, single-family homes. But a developer levels the trees, dams the brook, asphalts the property and fences it for a mobile home trailer park. The financial benefits from the trailer park would far exceed the one-time profits of scattered homes. The developer chose the highest use over the apparent best use. There are four alternative options to consider when deciding whether to change a commercial property: 1) status quo; 2) rehabilitation; 3) restoration 4) modernization. Status Quo. One way to achieve the highest and best use for the property is to maintain the status quo, keeping the property in its present condition, either developed or undeveloped. Not all properties need to be improved. A commercial property may be already functioning in its highest and best use. Land investments are a good example: some investors (notably corporations) choose to invest in vast parcels of unimproved real estate. Their decision does not necessarily reflect an objective highest and best use, but for each investor the concepts have different meanings. The owner could be holding the property for a number of reasons – taxes; appreciation; or to discourage competition. The property owner believes that the land is being used most appropriately. A charity or social organization might construct a meeting facility rather than a warehouse or shopping center on the site, which is a use other than the highest and best use. The nature and the origin of federally-subsidized housing dictate that it remain at the status quo, and that state does not necessarily reflect the highest or best use. Rehabilitation. Second, an existing building can be rehabilitated. Rehabilitation refers to restoring a building to its original condition without changing the physical appearance of the property or repairing part of the building whenever maintenance has been deferred. The goal is to return the property to a well-maintained condition. With cosmetic rehabilitation, attention is on form rather than substance, for example replacing a worn carpet or fixing cracked plaster. In these cases, the appearance of the building has changed slightly but not substantively. If the property suffers from substantial deferred maintenance, comprehensive rehabilitation might be in order. Adding amenities, such as a security system, might be included in comprehensive rehabilitation. In the process of major rehabilitation features can be added that will help to achieve optimum rents. Making these types of changes will bring the property back to excellent condition without changing its use. Restoration. Restoration should be differentiated from rehabilitation. Restoration is the process of returning the building to its original condition. Modernization. The purpose of modernization is to replace out-of-date items with modern, cost-efficient materials, or items that increase operating efficiency. Modernization reduces the loss in value due to changing styles or functions, which is called functional obsolescence. Basically, modernization changes the product – the property – to meet the demands of the market. In modernization program, thermal-pane glass might be substituted for regular glass; fluorescent or quartz lighting for incandescent; recessed fluorescent fixtures for acoustical ceilings; automatic elevators for manual ones. These are changes that either help the building function more efficiently or give it a more contemporary look. The ultimate goal of modernization is to extend the property’s economic life.

If you’ve started a new business and you’re considering leasing an office or retail space, a good way to begin your search is to find a leasing agent who is an established commercial real estate agent in your geographical area. An experienced leasing agent will know how deals are done in your community and in the case of a lease transaction, know how landlords work with agents and brokers. Experienced commercial agents will have the financial stability to allow them to put your best interests first. In most rental situations a commercial leasing agent gets paid when the transaction is completed and commissions are typically calculated based on the dollar per square foot multiplied by the times of the term of the lease. A financially stable leasing agent will be less tempted to rush negotiations or settle for a more expensive result when patience might produce something better for your specific needs. Finding a commercial real estate leasing agent isn’t much different than finding any other type of professional such as a lawyer, financial planner, mortgage broker, etc. A good dose of common sense; inquiring around within your network of personal and professional associates; and a moderate amount of research should help you achieve your goal. Here are a few questions to ask other professionals before narrowing your choices down to the final two: What is the commercial agent’s reputation like? What is his / her experience, honesty, availability, follow-through? A person who recommends a commercial agent to you should have the answers. If not, ask your mortgage lender (they are working with commercial real estate agents all the time). What are the commercial agent’s weak points? In every working relationship there has to be some differences that will occur. Find out what they are and if you think they are things you can work with. For instance, is the person always late? This may not be a problem if you tend to run late yourself, however it’s best to know upfront. What are the commercial agent’s strong points? You will want to find a commercial agent who can deliver your specific needs and requirements. For example, if you’re seeking a space for a dance studio you’ll need to find an agent who can think out-of-the-box and adapt space in a creative way to meet your highly special needs. Would they use the same commercial agent again? This question appears somewhat obvious but is useful because you’ll get a specific response that perhaps might not have been otherwise forthcoming. For example, you may hear a response that starts with “well, yes, because what I really liked was…” and the rest of the sentence often recalls a professional skill, such as attention to detail, that may be important and revealing to you. Once you’re down to two or three top prospects, you’re ready for the interview phase. Armed with the knowledge you now have about the commercial agent you’ll want to get information from the commercial agent as well. Here are two important questions you’ll want to ask them: What is the commercial agent’s experience with your needs? Hopefully you already knew that the agent was familiar with specific business needs like yours. But if you’re not sure – it’s important that the agent verbalizes their experience to you. Ask for references from other business like yours, that he / she conducted business with previously. What is the size of the real estate office? If you’re a small business owner with modest space needs, it’s possible to get lost in the shuffle with a larger firm that primarily deals with big tenants who need 10,000-square-feet and up. However, larger firms often have teams with agents on different levels who are willing to deal with smaller spaces and satisfy your needs too. Overall, office size is not important. It’s the quality of service you will receive that is. Finally, if you’re satisfied that the experience, level of skill, professional and personal style of a commercial real estate agent will suit your specific needs then it’s time to sign a contract. Signing a contract will protect you from the common misunderstandings that arise in every working relationship that is based on a handshake and further solidifies the relationship and trust between yourself and your agent. It will assure that the lease space you find is the lease space that your company needs.

We all know the 2004 hurricane season resulted in an unprecedented four hurricanes striking the State of Florida, and then again in 2005, another year of huge losses. Many of Florida’s prominent commercial insurance underwriters have completely pulled out of the Florida market and many who continue to write now exclude the State of Florida. We have seen enormous premium increases in recent policies, which for most commercial tenants equate to a higher pass through or higher shortfalls at year end when common area maintenance (known as CAM) / insurance and real estate taxes are reconciled. Insurance is used to manage risks to an investment and create a financial cushion against losses caused by foreseeable or unforeseeable events. Further, adequate insurance is necessary for owners to acquire financing for their investment properties. The kinds of insurance typically fall into two general categories. Property-loss insurance protects against losses from the destruction of the property or damages to the property and protects the owner against loss of rent due to property damage. Liability loss protects against claims for any damage or injury caused to another person or the person’s property. This minimizes the financial effect of liability for personal injuries that happen on the property, for instance, if someone falls in the lobby or in the parking lot areas, commonly known as a ‘slip and fall’ incident. The goal for purchasing insurance is that the owners not lose money, so coverage may be higher than the loan. Most owners typically insure for the ‘replacement’ cost of the asset. Some owners will assume more risk than others. It is important that this is determined at the time the insurance is purchased, as it is too late after an insurance event actually occurs. With the ever increasing premium rates we are now seeing, some owners are choosing to ‘self insure’ against loss and obtain only liability insurance. This is only possible on a property that is owned free and clear, as federal lending regulations require the borrowers to maintain sufficient property and liability loss insurance. Extended coverage endorsements provide additional protection against damage from windstorm, hail, explosions, riots, civil disturbances, smoke and are typically added to the main fire policy, which is generally considered the principal risk in real estate. Fire insurance policies can also include different kinds of property or extended coverages, for example vandalism and malicious mischief, building and contents coverage, specific hazards coverage, etc. Owners also need to determine whether local conditions and the needs of the property call for insurance against floods, glass breakage and replacement, or boiler and machinery malfunctions. The typical general liability insurance policy offers one or more coverages for bodily injury, property damage liability, or medical payment insurance. A comprehensive general liability policy provides for the broadest protection. The owner is covered against all risks except any specifically excluded in the policy provisions. Other additional coverages for liability could include Owners/Landlords/Tenants liability, wherein the policy would cover liability arising from maintenance, ownership or use of the premises, and would extend to activities off the premises involved in the running of the business; Medical payments insurance provides for reimbursing members of the public injured on the premises, regardless of liability, for medical expenses; contractual liability allows a party to assume liability contractually, for example, a tenant may agree contractually to take on the landlord’s liability under certain conditions. Insurance is an absolutely unavoidable cost for the owners and the tenants who pay for this proportionate share of coverage through their CAM. We can only hope that we have a less eventful hurricane season in Florida and that next year we can find more competitive rates and more companies once again entering the market.

Commercial investment properties require a premium insurance policy to cover all types of risks from vandalism to fires to hurricane storm damage. This extremely important cost to the property is recorded as an operating expense and is entered into the property management’s monthly statement to the owner. Very often, an institutional owner will cover all of their properties under a blanket policy and a property manager can have a difficult time determining the individual cost of coverage of a specific property for the purpose of the operating statement. This is the point when it’s prudent that the property manager be knowledgeable and begins his/her inquiry by asking the following question, what risks exist? First, it’s important to determine who the insured is before any questions can be answered. Is the entity of ownership an individual? Are they a partnership, a real estate investment trust or corporation holding legal title? This information needs to clearly defined and set forth. In the case of a general partnership, each of the partners should be named as an insured. If the deed holder is a limited partnership, be sure the general partners are listed individually as the names of the insured in the policy. If the ownership is in the form of a corporation, include the exact name of the corporation shown on the deed of record. While co-ops and condominiums generally fall into one of the ownership entities aforementioned, be sure that the board of directors (and/or board of managers) charged with the responsibilities for management of common areas are protected and named additionally as insured persons in the insurance policies. Whenever the responsibilities of management are transferred to someone other than the property’s ownership, there is a potential liability to the individual, partnership or corporation that accepts that responsibility. Those parties should be named as individuals in the insurance policy and this can usually be accomplished at no additional premium to ownership. Many policies have a statement in them that reads “anyone acting in the capacity of rental agent or manager”. However, even if such a statement is printed in the policy – it’s wise to have an endorsement specifically naming the responsible party. For example, it’s smart to include the line, “The ABC Company, managing agent, is hereby named an additional insured party.” The most obvious risk is the potential loss from fire or injury to persons on their property. However, there may be other risks which need to be covered by insurance. There is no substitute for making a thorough physical inspection of the property. In any high rise building the property manager should begin with an inspection of the roof and interior of the building. Usually there are at least two stairwells from the top to the lower levels. Walk down the building using alternate stairwells, thus he or she can inspect each public corridor. Upon reaching the ground level, they will check the lobby, shops if any, all public areas and all entrances and exists to the structure. While this walk-through inspection should not be treated lightly, a more complete and in-depth survey should be made of all mechanical equipment. Every property manager should know the working parts of a building. Why such an intense type of physical inspection, you may ask. The property manager is looking for any potential hazard or risks that would subject the property management firm or the property owners to a liability suit. The property manager will also inspect equipment which would be extremely expensive to replace or repair such as elevators, central air-conditioning equipment or security alarm and surveillance equipment to name only a few. The same thoroughness should be exerted in inspecting a mid-rise, an office building, a shopping center or any commercial structure. A building with a single or multi-level garage should also be carefully inspected. Curbing, aprons, over-changing shrubbery, pot holes and sunken areas are examples of risks that may exist in parking lots, particularly in shopping centers. This type of survey or inspection is of little value unless risks and potential equipment malfunctions are listed and corrections made where possible. As a result, savings will generally accrue through lower insurance rates.

We all know the 2004 hurricane season resulted in an unprecedented four hurricanes striking the State of Florida, and then again in 2005, another year of huge losses. Many of Florida’s prominent commercial insurance underwriters have completely pulled out of the Florida market and many who continue to write now exclude the State of Florida. We have seen enormous premium increases in recent policies, which for most commercial tenants equate to a higher pass through or higher shortfalls at year end when common area maintenance (known as CAM) / insurance and real estate taxes are reconciled. Insurance is used to manage risks to an investment and create a financial cushion against losses caused by foreseeable or unforeseeable events. Further, adequate insurance is necessary for owners to acquire financing for their investment properties. The kinds of insurance typically fall into two general categories. Property-loss insurance protects against losses from the destruction of the property or damages to the property and protects the owner against loss of rent due to property damage. Liability loss protects against claims for any damage or injury caused to another person or the person’s property. This minimizes the financial effect of liability for personal injuries that happen on the property, for instance, if someone falls in the lobby or in the parking lot areas, commonly known as a ‘slip and fall’ incident. The goal for purchasing insurance is that the owners not lose money, so coverage may be higher than the loan. Most owners typically insure for the ‘replacement’ cost of the asset. Some owners will assume more risk than others. It is important that this is determined at the time the insurance is purchased, as it is too late after an insurance event actually occurs. With the ever increasing premium rates we are now seeing, some owners are choosing to ‘self insure’ against loss and obtain only liability insurance. This is only possible on a property that is owned free and clear, as federal lending regulations require the borrowers to maintain sufficient property and liability loss insurance. Extended coverage endorsements provide additional protection against damage from windstorm, hail, explosions, riots, civil disturbances, smoke and are typically added to the main fire policy, which is generally considered the principal risk in real estate. Fire insurance policies can also include different kinds of property or extended coverages, for example vandalism and malicious mischief, building and contents coverage, specific hazards coverage, etc. Owners also need to determine whether local conditions and the needs of the property call for insurance against floods, glass breakage and replacement, or boiler and machinery malfunctions. The typical general liability insurance policy offers one or more coverages for bodily injury, property damage liability, or medical payment insurance. A comprehensive general liability policy provides for the broadest protection. The owner is covered against all risks except any specifically excluded in the policy provisions. Other additional coverages for liability could include Owners/Landlords/Tenants liability, wherein the policy would cover liability arising from maintenance, ownership or use of the premises, and would extend to activities off the premises involved in the running of the business; Medical payments insurance provides for reimbursing members of the public injured on the premises, regardless of liability, for medical expenses; contractual liability allows a party to assume liability contractually, for example, a tenant may agree contractually to take on the landlord’s liability under certain conditions. Insurance is an absolutely unavoidable cost for the owners and the tenants who pay for this proportionate share of coverage through their CAM. We can only hope that we have a less eventful hurricane season in Florida and that next year we can find more competitive rates and more companies once again entering the market.