PART ONE- SURF’S UP!

As far as many residents of the Mid-Atlantic United States are concerned, you can have your Riveria and you can have your Malibu; they’ll take the Jersey Shore.

Its clean, wide beaches, its soothing offshore breezes and its family friendly approach to entertainment have created an allegiance, and an investment appetite, that has proven unshakable for generations.

So it was with no small degree of interest that real estate investors jumped in when they heard through the grape vine that Candelaria Partners, a real estate investment firm with a great track record on the Eastern seaboard, was offering as part of their portfolio shares in three separate parcels along that hallowed stretch of barrier islands.

Candeleria didn’t need to advertise these high-end six-unit condominium properties. In fact, demand was so high the offering was oversubscribed and many investors had to scale down their hoped-for involvement. Duly notified that no investment was guaranteed and that these holdings were part of a portfolio, buyers of these shares were told that a 15% annual return on a five-year commitment was the “minimum” return that they could expect. That estimate raised few eyebrows, given the Jersey Shore’s track record.

As 2022 rolled into 2023, the founding partners of Candelaria Partners felt flush. The three Jersey Shore parcels, in Seabright, Surf City and Avalon, valued at around $25 million apiece, sold out in 24 hours. That gave the company a nice cash cushion to start the year with. The founding partners couldn’t know it at the time, but events were about to unfold that were going to bring them to their knees.

PART TWO- TROUBLE IN THE MOUNTAINS

Jerry and Pablo Candelaria, the company founders, had worked hard for what they’d achieved. They’d also developed a bit of an ego. In addition to their New Jersey holdings, they also owned increasingly valuable properties outside of the artist and foodie havens of Woodstock, Vermont and Asheville, North Carolina.

As savvy investors, the Candelaria’s felt they were ahead of the curve in holding real estate investments in these places that were traditionally bohemian but were becoming rapidly toney; very toney indeed. These properties weren’t fully sold out, but sales were strong and moving in the right direction.

In the mountains, the Candeleria brothers had rolled the dice a little. Their mountainside condo complexes in Woodstock and Asheville were beautiful, and top end. Stunning views, woodwork and layouts. Jacuzzis on the deck; that sort of thing.

Then, Mother Nature, peeved by climate change, dropped by to settle some of her own accounts.

Far from the ocean, the mountains of western North Carolina and Vermont aren’t top of mind for flood risk. But when hurricanes tracked inland in the fall of 2024, floods devastated both areas. Two of the Candeleria’s properties in Vermont were wiped out. Landslides turned three condo complexes in Asheville, all of them unsold, into so much sodden timber.

Touring the devastation, the Candeleria brothers could hardly believe their eyes.

“This is Vermont for goodness sakes,” Jerry said to his brother, his mouth literally hanging open as he observed the carnage.

“Floods like this, in Vermont?” Pablo said, and he practically had tears in his eyes.

“Inland flooding,” their broker told them on a subsequent call. “We’re seeing a lot more of this due to climate change.”

Both Candeleria brothers felt sick to their stomachs as they ingested the reality.

In what seemed like an overnight turn of events, Candeleria Partners was suddenly in a crushing cash-crunch vice.

Even though the properties in New Jersey hadn’t turned a hair, investors in those properties were a bit put off at year-end 2024, when “due to circumstances beyond their control” the Candeleria brothers announced that due to “issues in other parts of their portfolio” there would be no 2024 dividend for owners of those properties, a situation, they said they hoped to remedy in the “very near future.”

When pressed, during a conference call with investors, the brother revealed that the portfolio had suffered significant losses in North Carolina and Vermont.

After a week or two, as portfolio investors learned more about what had happened in North Carolina and Vermont, their befuddlement turned to anger.

“They’re not responsible for climate change,” one investor told another on a phone call.

“Yeah. But they took our money and didn’t disclose where their additional portfolio holdings were located. That’s the issue!” the other investor said.

Some fuses are shorter than others. Not many of the Jersey Shore investors panicked, initially. But a guy in litigation-happy Philadelphia wasn’t waiting around. In early 2025, making sure he was first in line, he filed the first of what would become many lawsuits against the company, alleging misrepresentation and breach of contract.

PART THREE- STUCK IN A RIPTIDE

The North Carolina and Vermont properties were insured, but when lining up financing for their rebuilds, the Candeleria brothers found themselves in a savagely different interest rate environment than they were back in 2020.

From interest rates at sub three percent they were looking at rates more than double that, adding to their cash flow problems.

Then came more pain. With one Jersey Shore lawsuit now having turned into seven, the company got some bad news from its insurance broker. The company’s D&O insurance policy denied the claim to pay the legal fees for the New Jersey-related lawsuits.

“You are managers of a portfolio,” the broker explained to them. “And you weren’t exactly clear about the entirety of your holdings,” he added.

Lacking a specific E&O policy to cover themselves in their capacity as investment managers, the Candeleria brothers are facing a scenario where their attorneys’ fees are uncovered by their D&O policy, and the cost of any settlements related to the lawsuits were also likely to be uncovered.

Making matters even worse, efforts are underway by plaintiff’s attorneys to consolidate the New Jersey lawsuits under the jurisdiction of one of the most toxic judicial hellholes in the country; Philadelphia.

“How can we get out of this?” Jerry said to Pablo as they were golfing one day in Cape May.

Pablo straightened up from lining up a putt, and looked out on the Atlantic Ocean.

“We can’t,” Pablo said. “I’ve loved the Jersey Shore my whole life, now it’s going to be nothing more than a reminder of our failures.”

In the spring of 2026, Candeleria Partners is on the verge of bankruptcy, buffeted by climate change, brutal market conditions and a grievous oversight in its understanding of its insurance policies. &

Risk & Insurance® partnered with Westfield Specialty to produce this scenario. Below are Westfield Specialty’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance ®.

Key considerations for real estate investment firms:

• Investment Management E&O Exposure: Real estate firms that manage or invest funds on behalf of third parties typically carry Errors and Omissions (E&O) liability insurance related to these services. Many Directors & Officers(D&O) liability policies include professional services exclusions that may preclude coverage for claims brought by third-party investors or arising from investment management activities. Firms should work closely with their insurance brokers to ensure these exposures are adequately addressed and that the coverage aligns with the firm’s operational realities. Many carriers offer blended or packaged D&O/E&O policies to address this need.
• Coverage Across Related Entities: Real estate investment firms must clearly understand the scope of coverage afforded to all affiliated and managed entities—such as joint ventures, investment holding LLCs, and private funds. Ambiguities in coverage can result in costly gaps if claims emerge from these entities.
• Clarifying Targeted Returns in Disclosures: The often-cited disclaimer, “Past performance is no guarantee of future results,” should be applied with care. Investors may misinterpret “targeted return” metrics in offering materials as guaranteed or minimum returns. Firms should consult legal counsel to ensure all performance projections are properly framed and accompanied by appropriate disclaimers and risk disclosures