MONTHLY MARKET UPDATE — Q3 2006

INTER-URBAN SPREAD?

In the last few years the country has experienced something that we honestly haven’t experienced since the turn of the century. One hundred years ago, people were clamoring to get OUT of the cities and create what we now know as our city suburbs. At that time, it was considered to be a notch on your belt if you could live outside the city center.

Flash-forward one hundred years.

Inter cities are gentrifying - Cities like New York, Chicago, Boston and San Francisco have always maintained upper-class, urban housing. Now it has recently become quite chic to live inter-city in lofts, condos and brownstones in cities such as San Diego, Atlanta, Denver, Houston, and (yes) even Los Angeles. Many cities across the US are spending millions if not billions on revamping city centers to accommodate the upper-middle class in housing. Creating high end shopping, inter-city transportation and top-of-the-line eateries, makes it very attractive to live inter-city now.

“Now that housing prices are out of reach for many first-time buyers
and the aging population is downsizing their principle residence, condominiums have become the starter-housing product for the
current decade and have become the perfect maintenance-free
housing product for those who have retired.  Condo conversions
are now very profitable for the Investor and Developer as well.”

Insurance Journal 2006

What this poses to many builders is the need to accommodate this trend and be open to conversion projects and cross-over residential and commercial building. Many projects may be old factories or commercial buildings that are being now converted into condos, lofts or duplexes. Sometimes builders are not properly insured for this type of project. Many policies will exclude condos or any project that has any type of HOA attached. Be aware. Check your policy and call your broker before you begin the project to make sure you’re properly covered.

There are only a few companies that will cover this. Most premiums are higher, because the exposure is higher. Sometimes, a builders risk policy or a premise only policy combined with a warranty policy can remedy this and save you some money. Creative risk management comes into play in this case.

As builders, you need to be very aware of the risks of urbanization. Sometimes, cities may require certain certificates or A-rated carriers. Many requests may come up and you need to be aware of what you have and what you can offer. Call your broker in advance and advise them of your plans.

My only word of advice is to stay up with the times and be prepared in every way possible. Cities are dynamic — make sure you are prepared to change as they do.

Hadley Wood

Hadley Wood
President, SHW Insurance Services