In the dynamic realm of real estate, market fluctuations continually redefine the strategies of property owners, developers and managers. The complex interplay between insurers and reinsurers, although often behind the scenes, significantly impacts the cost and availability of insurance for commercial properties. With the current reinsurance market facing rising costs and limited capacity, real estate stakeholders must adopt innovative and proactive approaches to navigate these challenges effectively.

Catastrophic losses fuel reinsurance costs surge

Reinsurance, often coined “insurance for insurers,” plays a crucial role in risk management, particularly within the commercial real estate sector. The recent shifts in the reinsurance landscape have underscored its growing importance, with reinsurance pricing predicted to peak in 2024. These sudden changes have complicated the quest for affordable and comprehensive insurance coverage, necessitating a reassessment of strategies for real estate owners and operators to protect their investments.

Senior vice president, commercial risk at Hub International.

The primary driver of this upheaval in the reinsurance market has been the surge in catastrophic losses due to global natural disasters. Notably, 2023 stands out as one of the costliest years on record, with 28 weather and climate disasters that incurred an estimated $92.9 billion in damages, surpassing the previous record of 22 in 2020. While most of us typically jump to the idea of Coastal Hurricanes and Western U.S. Wildfires being the common natural disasters occurring in the United States, the Central and Midwest Regions have recently seen an increase in events from convective storms, straight line winds, and hail damage resulting in insured losses.

The ripple effect of reinsurance

To safeguard against substantial losses, insurance carriers depend on reinsurance. However, as reinsurers adjust their strategies to address rising risks, the repercussions are felt across the industry. When reinsurers hike costs or reduce capacity, insurance companies are forced to absorb more risk. This inevitably leads to higher insurance premiums, stricter limitations on risk exposure with increased deductibles, or a reduction in the maximum coverage offered.

Real estate investors are typically drawn to the Midwest due to its diversified economy, consistent economic growth and low unemployment rates, which collectively foster a stable real estate environment. The region’s lower cost of living and business operations compared to other areas results in higher rental yields, attracting those looking to expand their investment portfolios.

As the reinsurance market exerts its influence, real estate owners and operators in Michigan face the challenge of paying more for potentially reduced coverage. Property owners must proactively seek solutions to mitigate these impacts and safeguard their investments.

Here are four options to navigate the uncertain reinsurance market:

1. Ensure accurate property valuations. Accurately assessing replacement costs in the event of catastrophic events is critical to avoid inaccurate replacement costs on property policies, as undervalued properties are increasingly avoided by insurers. Property owners and developers should include third-party reconstruction appraisals during insurance applications or renewals to provide insurers with a comprehensive view of reconstruction costs to help avoid potential penalties and added costs.
2. Explore parametric insurance. Unlike traditional insurance models that rely on actual property damage, parametric insurance covers risks from specific perils, such as storms, and triggers payouts regardless of physical damage. This approach allows for swift loss management and mitigates disruptions to business operations, offering real estate stakeholders in Michigan a faster recovery mechanism.
3. Strive for excellence in property management. Implementing robust risk management strategies, particularly in areas prone to floods and fires, can expand insurance options and potentially reduce costs. Maintaining properties so they are in optimal condition and enhancing security measures to prevent theft and damage are essential components of this strategy.
4. Leverage expertise and resources. Navigating the complex reinsurance landscape requires expert guidance. Collaborating with trusted advisors can reveal innovative solutions to reduce insurance costs. Utilizing strategies such as catastrophe (CAT) modeling, selective coverage placements across multiple carriers and thorough reviews of property leases for hidden liabilities can uncover opportunities for enhanced coverage at optimal prices.

Reassurance with reinsurance

In a time where resilience is crucial, real estate owners and operators must adopt proactive strategies to safeguard their investments from the volatile reinsurance market. By integrating meticulous property management, precise valuations, innovative insurance models and expert guidance, stakeholders can not only withstand challenges but also discover growth opportunities. As the reinsurance landscape evolves, those who stay agile and forward-thinking are well-positioned to thrive despite the obstacles.

Austin Smith is a Senior Vice President in Commercial Risk at international insurance brokerage Hub International Michigan.

Cushman & Wakefield has arranged the sale of Granite Point Business Center in Denton, Texas, in the Dallas-Fort Worth market.

Cushman & Wakefield’s Jim Carpenter, Jud Clements, Robby Rieke and Trevor Berry represented TA Realty LLC in its sale to High Street Logistics Properties.

Located at 2300 Interstate 35W Frontage Road in Denton, Granite Point Business Center totals 145,000 square feet and is fully leased to four tenants that have been in occupancy of the property for an average of 13.5 years. The Class A, rear-load distribution center is located in the Far North/I-35 submarket, just south of the convergence of I-35W and I-35E in Denton and features I-35W visibility. Additionally, Texas DOT will be expanding the frontage roads in front of the property, resulting in direct ingress/egress with I-35W.

“A high-quality, very functional asset, well located within a rapidly growing sub-market and at a basis well below replacement cost attracts the most active buyers in the market,” said Clements, Cushman & Wakefield’s Executive Managing Director. “The asset is fully leased to a diverse group of quality tenants, which provides the opportunity to grow cash flow and capture near-term NOI growth by marking below-market rents to market.”

Granite Point Business Center was developed in 2006 and features 24’ clear heights, eight storefronts, 50×50 column spacing and 286 parking spots.

PREMIER Design + Build Group broke ground in December on an office addition and renovation for Sumitomo Drive Technologies in Lufkin, Texas.

The project marks the first for PREMIER in the region and the second to work with Sumitomo Drive Technologies, a leading manufacturer of power transmission and motion control solutions. 

In September, the team wrapped up a warehouse and office renovation for Sumitomo Drive Technologies in Glendale Heights, Ill. Based on that project–after which Sumitomo Drive Technologies presented Project Superintendent Dan Vanderbiest with an award for performance–the client requested the same building team for the Texas office addition.  

“Maintaining the same construction team helps ensure consistent quality and efficiency because the team is already familiar with the project’s unique requirements and challenges,” says Eduardo Plata, Corporate Project Manager for Sumitomo Machinery Corporation of America. “Their established communication, collaboration, and understanding of the project’s goals lead to fewer mistakes, smoother workflows, and quicker problem-solving. This continuity fosters a higher level of trust, accountability, and ultimately, better results.” 

The 7,812-square-foot expansion in Texas will more than double Sumitomo Drive Technologies’ current office space and will house individual and open offices, a training room, a break room, restrooms, and conference rooms. The PREMIER team also will renovate the existing bathroom and break room in the adjoining warehouse and add 10 new parking spaces.  

“We pride ourselves on our ability to be flexible to changes and to provide solutions and options to our clients,” Vanderbiest says. “Sumitomo Drive Technologies trusts what we’re doing and that we act in their best interest. We go above and beyond as a team in a lot of ways to ensure projects like the addition for Sumitomo Drive Technologies are successful.”

Expanding to New Markets

Though PREMIER is active in the Midwest, Northeast, and Western regions, the office addition is the first for the contractor in Texas. PREMIER finds success in new markets due to its commitment to adaptability and its ability to conduct thorough regional research. 

The primary challenge associated with entering a new market is securing contractors that can be trusted to uphold PREMIER’s high construction standards and adapt to its model of exceeding client expectations. To find regional subcontractors for the office expansion, the team conducts research to identify potential quality partners and seeks referrals from trusted sources. 

PREMIER also has taken a less conventional approach by contacting top general contractors in the region for subcontractor recommendations, getting to know the local contracting community, and building relationships. 

“It’s kind of unconventional because in some ways they’re our competition,” says Joseph Ahrens, Senior Vice President/Midwest Market Leader at PREMIER. “But we explain that we’re not trying to take work, we’re trying to help their trusted subcontractor base get more work–a win-win for everyone.”

Once subcontractor partners are identified, Vanderbiest and the field team conduct in-person interviews with each company to ensure they can uphold PREMIER’s commitment to quality. 

The building team also needs to acclimate to environmental factors associated with a new market. Texas is warm, so some processes are simpler than in the Midwest and other cold climates, like pouring concrete and backfilling materials. 

Permitting in the Lufkin area is simpler than in markets like the Midwest, which streamlines the project but also comes with difficulties. No permits are required for the office addition, so PREMIER must be certain construction is completed according to local codes, requiring extensive research and due diligence, as well as hiring design consultants familiar with regional codes. 

“Though this is east Texas, which is a very different climate and market than we’ve worked in before, Sumitomo Drive Technologies still trusts us because they know how we operate and that it’s our goal to understand their needs and find solutions to any challenges,” Ahrens says. 

Construction is expected to be completed on the facility, located at 2612 US-69 in Lufkin, in June 2025. 

Another unsteady year for the U.S. office sector? That’s what Yardi Matrix predicts in its January National Office Report.

In this report, Yardi Matrix says that 2025 will be another tough year for the U.S. office market. Even more worrying? The company says that the worst days of the country’s office sector “may not yet be in the rearview mirror.”

As Yardi Matrix says, the U.S. office sector is in the early days of what it calls a multi-decade transformation of this troubled sector.

The numbers bear out Yardi Matrix’s gloomy outlook. According to the company’s January report, the U.S. office sector ended the year with a national vacancy rate of 19.8%, an increase of 150 basis points from a year earlier.

Yardi Matrix is not predicting that office vacancy rates will fall this year, even as major corporations demand that their employees return to the office. As Yardi Matrix says, office utilization rates have plateaued in the last two years, indicating that many companies have permanently adopted remote and hybrid work.

As Yardi Matrix says, when a major company like AT&T states that all employees must return to the office five days a week, it generates headlines. But the many smaller companies that commit to hybrid work and downsize their office space? That rarely makes the news today.

Because of this, Yardi Matrix predicts that any drop in the U.S. office vacancy rate in the next few years will be driven by a shrinking stock of office space, not a rise in occupied space.

In another prediction, Yardi Matrix says that it expects office conversions to happen in 2025, but not in huge numbers. Most obsolete office properties won’t work for conversions to multifamily, industrial or retail uses. Conversion is expensive, and it only works for properties in the right locations.

In slightly more positive news, Yardi Matrix predicts that there will be an increase in office sales volume this year. But the company also says that the average price of an office building will not increase much in 2025.

As Yardi Matrix says, because office utilization rates have plateaued and hybrid work is now the norm for many firms, investor demand for office space will remain muted in 2025. So while office sales volume should rise this year, don’t expect a boom in investor dollars flowing to this troubled commercial sector.

In its report, Yardi Matrix said that a significant portion of 2025’s office transactions will be distressed sales. That’s because billions of dollars in loans are maturing this year, with many of them for office buildings that have struggled to maintain occupancy.

Several markets in the Midwest and Texas saw office vacancy rates rise in 2024. In Dallas, for instance, the metropolitan area ended 2024 with an office vacancy rate of 24%, up 380 basis points from the end of 2023. And in Austin, the office vacancy rate stood at 27.9% as of the end of 2024, up 690 basis points from a year earlier.

Nashville saw its office vacancy rate increase by 90 basis points throughout 2024, while in Chicago the office vacancy rate jumped by 70 basis points by the end of 2024 compared to the end of 2023.

There were bright spots in both Texas and the Midwest, though. In Houston, the office vacancy rate fell 40 basis points in 2024, ending the year at 24.5%. And in the Minneapolis-St. Paul market, this vacancy rate dropped by 160 basis points, ending 2024 at a fairly low 16.2%.

Detroit also saw its office vacancy rate fall during 2024, by 30 basis points, ending the year at 24.7%.

DALLAS – Direct Commercial lender Grand Pacific Financing Co. has officially become licensed to lend in the Great State of Texas, offering up to 80% Loan-to-value (LTV) on residential investments and up to 75% on commercial properties. For construction loans, they provide up to 75% LTV or 80% Loan-to-Cost (LTC), and for land deals, they consider up to 50% financing.

The lender hit the ground running upon landing in the Lone Star State, closing a $1,000,000 Cash Out deal on a commercial strip mall in Katy, Texas in just 3 weeks, along with a $1,300,000 Cash Out Refinance deal on an office building in New Braunfels. They quickly followed this success by closing a $4,060,000 Refinance deal on a retail property located on the incredibly popular South Congress Avenue in Austin, Texas, despite the subject business’ current financial struggles, high LTV, and the investor being out of state.

Grand Pacific’s utilization of payment reserve allows them to work with clients despite their current financial situation. Their Debt Service Coverage Ratio (DSCR) requirement is set at 1.0x, but if it’s below that, they can structure the loan with a payment reserve to further leverage financing.

The lender’s in-house credit committee is composed of a diverse group of seasoned business professionals that understand business owners and investors need quick decision making and fast funding. The committee is involved with the deal starting on day one of the inquiry and can give a response to whether the deal can be made within 24-48 hours.

The company has been in business for over 40 years and lends on a global level, serving not just multiple states in the United States, but also multiple countries in Eastern Asia including Tawain, Thailand, and Vietnam. Grand Pacific is a direct subsidiary of Chailease Holdings Company, which employs over 5,700 bright and motivated individuals worldwide.

If you have an inquiry or any questions about Grand Pacific’s loan programs, you can reach the Texas office by calling (817) 329-5089, or the California office by calling (323) 780-8881. You are also encouraged to visit their website, www.gpusa.com, to learn more about the company’s programs, staff, and history.

In the United States, Grand Pacific is currently lending in California, Texas, and Washington.

California Office: 901 Corporate Center Drive, #300, Monterey Park, CA 91754 (323) 780-8881                        

Texas Office: 6275 West Plano Parkway, #5168, Plano, TX 75093 (817) 329-5089  

Contact Us! Vincent Trinh – Vice President, Marketing Manager www.gpusa.com | (626) 537-0678 | Vincent.Trinh@gpusa.com

 M2G Ventures acquired 211 E. Alpine Road and rebranded the project to ALCO, a 50,000-square-foot mixed-use property in south Austin, marking the company’s second acquisition in Texas’ capital city.

ALCO will be transformed into a hub of creativity and innovation, forging a dynamic commercial space fostering artistic expression and collaboration. Redevelopment is underway, starting with the full rebranding, enhanced landscaping and hardscape, improved parking, along with interior and exterior paint. Other project renovations include upgraded common areas and restrooms, enhanced interior and exterior lighting, storefront upgrades, and public art installations.

The rebrand to ALCO represents a combination of the street names at the intersection of Alpine and Congress, underscoring its strategic geographical advantage of the site which positions businesses for optimal accessibility and connectivity. With easy access to both I-35 and U.S. Highway 290, this infill location provides excellent connectivity to the densely populated interior Austin neighborhoods and to Austin-Bergstrom International Airport via State Highway 71.

ALCO features attractive building characteristics for discerning industrial users including clear heights up to 20’, ample parking, and front-load configuration. With M2G’s strategic renovations and branding efforts, ALCO will also offer a unique environment for showrooms, tech, studios, creative offices, breweries, distilleries, and roasteries in Austin’s highly sought-after 78704 zip code.

The property currently has vacancies available up to 32,000 square feet. Andrew Creixell and Joel Hargett with CSA Realty Group are currently leasing ALCO.