The Detroit real estate market is transforming rapidly, with property owners seeking innovative ways to repurpose their assets.
While adaptive reuse offers exciting opportunities, it also brings increased risks that property owners must navigate with flexibility and adaptability.
Here are a few considerations for managing these risks effectively:
- Vacancy clauses in property policies can alter coverage terms when spaces become vacant. Securing new coverage for repurposed properties with existing vacancies is crucial for continuous coverage.
- Repurposing buildings often requires navigating complex local codes and zoning laws. Rezoning can be costly and time-consuming, especially for older buildings. Assess feasibility within existing regulations before committing.
- Repurposing requires aligning infrastructure with new space needs. Building systems must be inspected and updated to meet the new building requirements, such as installing sprinkler systems or wheelchair access.
- Large property owners with triple net leases — where the tenant agrees to pay expenses such as real estate taxes, insurance, maintenance and utilities in exchange for lower rent — may face challenges during repurposing. Vacancies mean reduced rent and disappearing coverage. Swift insurance procurement is necessary to address risks like vandalism or fire.
- Repurposed assets and the operational risk of tenants is another area which property owners need to shift attention. Property owners need to be aware of the operations that are inherent to the tenants to which they are marketing and eventually enter into a lease agreement. The operations of a tenant in these spaces often become a key underwriting component in which the insurance market underwrites the risk profile of the property owners as well as the tenants.
Repurposing real estate presents both opportunities and challenges. Careful evaluation of regulatory, structural and insurance considerations is essential.
Austin R. Smith, CLCS, CAWC is a Senior Vice President in Commercial Risk at international insurance brokerage Hub International Michigan. He is focused on delivering creative solutions that drive results and reduce risk, helping clients position themselves in the marketplace and helping to educate them in making better informed business decisions.
