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Investors typically acquire commercial properties to generate income from an investment. However, they may jeopardize their ability to do so for the long term by underestimating the importance of insurance and risk management. Without the right coverage or risk prevention practices in place, an owner leaves their asset vulnerable to natural disasters and other liabilities that can cause losses that are difficult to recover from. Todd Rissel, CEO of leading property valuation SaaS provider e2Value, encourages a mindset shift in commercial property ownership. Insurance is a critical need for an asset, and its importance evolves over time. Commercial property owners looking to receive consistent returns from their assets must take this into account in today’s modern landscape.
To most property owners, insurance is seen as a hefty expense with little value. Commercial property owners may not always consider all the risks their asset is exposed to and neglect to consider how insurance impacts the ongoing value of their space. Valuation models calculate the worth of what will be developed in a space and risk models measure the ‘shake, rattle, and roll’ of what currently exists there.
Many property owners are unaware of this fact and merely view insurance as a legal obligation not correlated with their business success. This thinking leads them to cut corners on insurance premiums in an attempt to reduce their costs. At the moment, this feels like a good decision to make. Long-term, it leaves commercial property owners vulnerable to catastrophic losses. Inadequate insurance coverage and a lack of risk mitigation strategies–like security systems, fire protection, and regular property maintenance worsens the potential for liability.
Another grave mistake of commercial property owners is misunderstanding policy limitations. Understanding what a policy covers and excludes is the foundation for a well-protected asset. Ignoring these details and failing to adapt to changing circumstances heightens the likelihood of an irreversible property loss.
Before jumping into commercial property ownership, e2Value CEO Todd Rissel suggests laying the right foundation. Assessing investment goals, securing finance, and relying on industry professionals will go a long way in locating the right property and ensuring it meets physical, legal, and financial standards. e2Value assists commercial property owners on this journey by offering cutting-edge replacement cost calculators for assessing rentable space and its overall value. These tools help mend the disconnect between property ownership and the responsibility that comes with it. Todd asserts that there is a growing importance for these factors to be considered.
“Intensifying climate events have devastated countless communities in recent years, and these disasters are some of the most common liabilities an asset is exposed to when it’s underinsured or lacks the proper risk mitigation strategies," says Todd. "These disasters have long standing impacts on a property's cash flow as repairs, replacement get exacerbated by multiples of claimants."
Until commercial property owners ensure their asset is insured to value and properly protected from risks, their investments will consistently be under threat. A myriad of liabilities outside of climate events are highly likely to harm their property's ability to deliver a return. Creating a robust business continuity plan that takes these risks into account is critical for calculating necessary insurance coverage and mitigation strategies. Industry leaders like e2Value are working to make this process as simple as possible by leveraging technology. With cutting-edge tools constantly evolving to the rapidly changing landscape, commercial property owners unlock a lucrative future with their assets.