Replacement Costs for Commercial Real Estate Making an Impact
June 17, 2014
Replacement cost levels on commercial real estate insurance policies are at an all-time high. According to industry experts, asset values and policy limits are increasing, which is causing overall premiums to jump.
Replacement cost—the true construction cost to rebuild a structure from nothing more than a dirt lot—includes the hard and soft cost in the new construction process. Replacement cost is driven by many additional factors, but all tend to increase the older a property becomes. So, if you own an older office building in the Valley this could impact your bottom line.
Industry experts recognize that stricter insurance requirements are also a contributing factor to these rate hikes.
With the increase in insurance requirements it is important to do your homework during each transaction. Also, it’s important to do due diligence during the underwriting process of the acquisition when you’re making a purchase.
Experts also recommend getting updated values for the property’s rate calculations. Making an offer using old rates can have a significant impact on a purchase transaction.
For example if data is used from two years ago to anticipate the replacement costs of a building, actual rates could come in much higher – maybe even as much as 30% higher, which could have an impact on your transaction.
Are you looking to purchase commercial real estate in the Phoenix area? Contact Helix for help finding the right parcel at 602-648-2020.