Struggling landlords and developers are seeking leeway on coverage from their lenders — mostly in vain.The New York Times reports that landlords and developers are struggling to get relief from their lenders when it comes to insurance coverage. This has been a major issue for commercial real estate for over two years, as postpandemic vacancies and rising debt payments have taken a toll. While these threats are starting to fade, property owners are now facing a new problem that could last much longer: soaring insurance costs.

This issue is not limited to a specific region, as homeowners across the country are also experiencing the same problem. With the increase in climate-related natural disasters, insurance companies are raising rates or pulling out of markets altogether. The most significant rate increases have been seen in coastal cities and towns that are vulnerable to damage from severe storms or coastal floods. However, insurers and banks are now realizing that no area is truly safe from the increasingly extreme and unpredictable weather events.

The recent hurricanes, Helene and Milton, have caused an estimated $75 billion in damages, leaving a trail of destruction and deadly floods in Florida, Georgia, and the Carolinas. Building owners are caught in the middle of this situation, as they are facing pressure from both their insurers and lenders. Lenders are afraid of being on the hook for catastrophic damage and are not willing to make any changes to policies, even if it means giving struggling borrowers some breathing room.

While it is difficult to determine the exact number of properties that have gone into foreclosure solely because of insurance costs, industry experts have reported deals falling apart due to this issue. Developers and investors are already dealing with higher interest rates, materials, and labor expenses, and the added burden of insurance costs can be the tipping point.

According to Marsh McLennan, a leading insurance brokerage, premiums for commercial properties have increased by an average of 11% nationwide last year, with some areas seeing a 50% increase in storm-vulnerable places like the Gulf Coast and California. This year, premiums may have doubled in some of these areas.

In conclusion, the rising insurance costs are causing significant challenges for landlords and developers, who are already struggling with the aftermath of the pandemic. This issue is not limited to a specific region and is a result of the increase in climate-related natural disasters. It is causing tension between insurers and lenders, and it is becoming a deciding factor for many deals in the commercial real estate industry. 

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