Commercial Real Estate

7 Critical Issues Facing the Commercial Real Estate Industry

Fire, flood and hail are among the risks that threaten commercial real estate.
By: | June 12, 2018 • 3 min read

Mall vacancies are a top critical issue facing commercial property owners.

Watch footage of the raging flood waters that so badly damaged Ellicott City, Md., in May and you have some indication of the climate change-induced threats that await commercial real estate investors and their properties. What follows is a list of seven critical issues facing the commercial real estate industry, which includes flood and rising seas.

 

1) Environmental

One of the most gratifying trends for urban dwellers and developers in recent decades has been the conversion of former industrial sites to mixed-use retail. The highly successful SouthSide Works built on the site of a former steel mill in Homestead, Pa., is one such example. But these types of projects can come with looming environmental risks.

Soil, sediment and groundwater contamination can be difficult risks to mediate and problems can surface years after the ink has dried on the real estate contract.

2) Tenants

A commercial property owner ended up in a dispute with its insurer after tenants took liberties with their space. An illegal marijuana-growing operation resulted in removed walls, holes cut in the roof, added HVAC work and gas lines. There was also extensive damage to walls, ceilings and floors due to prolonged exposure to moisture in the farming operation.

Other tenant hazards in commercial property ownership include additional illegal drug manufacturing operations for say, methamphetamine production, and fires or environmental pollution caused by tenant activity.

3) Vacant Buildings

With brick-and-mortar retail under horrendous pressure from online selling operations, there are entire swaths of formerly thriving malls that are lying vacant, hopefully awaiting reuse, but presenting major liability exposures in the meantime.

Empty properties invite vandalism, theft and can serve as backdrops for other criminal activities, from illegal dumping to robberies, assaults and drug dealing. Vacant malls aren’t the only hazard, the trend of young urbanites exploring abandoned buildings and taking photographs or painting murals in them leads to liability concerns for the property owner should those explorers die or be injured.

4) Flood/Sea Surge

Residents of Miami and Norfolk, Va., know it well. Rising seas are increasing the risk of flooding in some of our major cities.

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Owners of commercial buildings are hurrying to purchase defenses, such as inflatable flood barriers, or relocating expensive heating and cooling equipment from the basement to higher floors.

But what we have seen so far, even with the devastation of Super Storm Sandy, is sure to pale in significance to what we can expect in future years. The warming planet will push sea levels higher and higher and result in more intense storms, causing even more run off, such as that which severely damaged Ellicott City, Md. in May, 2018.

5) Hail

Far from being an event that just damages crops or pounds unprotected cars in port city parking lots, hail also exacts a toll on commercial buildings, particularly their roofs. Hail results in total property damage of more than $1 billion per year.

6) Fire

Fires in commercial properties cost property owners billions annually, and there are new fire threats emerging for commercial property owners all of the time.

The risks of fire from lithium ion batteries and from overheating data centers are two new risks related to technological advancements that commercial property owners need to worry about.

7) M&A

The contingent liabilities in commercial property transactions are a risk that carry a high premium cost but may be candidates for prudent risk transfer. Contractor’s liens and legal actions from prior or current tenants are among the liabilities that may need to be vetted to determine if a commercial property transaction is worth undertaking. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]