Two Current challenges for Apartment Owners, and how to successfully navigate them:
In the dynamic landscape of real estate, apartment buildings have long been regarded as a stable investment. However, recent macroeconomic factors have formed a confluence of rising costs and new regulations for Owners and Managers that are difficult to navigate. Fortunately, there are some concrete strategies to help navigate this difficult world of increasing expenses. 2 of the most common factors are soaring insurance costs and escalating utility rates, and there are ways savvy owners and managers can mitigate these factors.
Utility rate increase are the first area of concern. Apartment building owners are vulnerable to upcoming hikes in utility rates, particularly water and sewer charges. Older properties are more likely to be master metered, so the owner will bear the brunt of utility increases. As an example, The Metropolitan Water District has passed a budget projecting an 8.5% increase in water rates for both 2025 and 2026. Moreover, owners can also expect their sewer bills to double in the next four year as LA Sanitation needs to complete upgrades to the aging infrastructure. These rate hikes have already been approved by the LA City Council. The best way for owners and manager to address these impending increases is to implement a RUBS program as much as possible (in addition to all the standard energy efficiency upgrades, like LED lights and low flow toilets). Older, rent controlled properties will be more limited in their RUBS adoption, however all new leases can and should be put on a RUBS program to help defer and share the costs of utilities at a property. As more units turn over time, the share of units on RUBS for a rent controlled property will only increase.
Possibly the most concerning increases right now are the skyrocketing costs of insurance. Over recent years, insurance premiums have seen a dramatic surge as many carriers have left the market. This abrupt escalation in insurance expenses has caught many property owners off guard, straining their financial resources and eroding profit margins. The best way to combat this affront is to have multiple great insurance brokers working for you. We know and work with many excellent insurance brokers, as not every broker has the best insurance partner for each property type or location. Good brokers know that sophisticated property owners need to get multiple bids for different kinds of coverages. Most good brokers know that they specialize in one or more particular type of asset class, and they focus their resources on maximizing the utility of that specialty. Recently, some potential 50% insurance rate hikes have been brought down to more-palatable increases of 5% - 20% by spending the time and energy to really understand coverages and get multiple bids.
The above said, have no fear! Crescent Canyon is skilled in navigating all kinds of property challenges and we have many different strategies to help maximize your investments.
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