{"id":119939,"date":"2025-03-08T11:57:34","date_gmt":"2025-03-08T11:57:34","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/insurance\/navigating-insurance-challenges-in-affordable-housing-rehabs-vs-new-construction\/"},"modified":"2025-03-08T11:57:34","modified_gmt":"2025-03-08T11:57:34","slug":"navigating-insurance-challenges-in-affordable-housing-rehabs-vs-new-construction","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=119939","title":{"rendered":"Navigating Insurance Challenges in Affordable Housing: Rehabs vs. New Construction"},"content":{"rendered":"


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Preserving existing affordable housing is a critical component of addressing America\u2019s affordable housing shortage. However, affordable housing developers focused on rehabilitating, or \u201crehabbing,\u201d older properties face many challenges beyond the risks associated with new construction.<\/p>\n

Understanding Rehab Insurance Challenges<\/h4>\n

Compared to new construction projects, rehabbing affordable housing comes with a unique set of risk management and insurance challenges. Rehabs expose developers to heightened risks and, subsequently, higher insurance costs due to the complexities of simultaneously managing the property being rehabbed and<\/strong> the \u201cexisting structures,\u201d e.g. any property not under construction (whether occupied or unoccupied).<\/p>\n

Consider a scenario where a rehab is underway. If heavy machinery is used in proximity to the existing apartment buildings, it raises the potential for accidents or property damage. During occupied rehabs, the proximity of residents presents an added risk exposure not found in new construction projects. Additionally, elements like exposed copper wiring or other construction materials can serve as attractive nuisances for both residents and passersby.<\/p>\n

Many builder\u2019s risk insurers simply refuse to cover the existing structures during a rehab, forcing owners to secure both a builder\u2019s risk policy and standalone property coverage for the existing structures. This increases costs and can even lead to insurer disputes in the event of a claim if the insurers disagree on whose insured property was damaged.<\/p>\n

\u00a0Insurance Best Practices for Affordable Housing Rehabs<\/h4>\n

Being clear with your underwriter on exactly what property constitutes \u201cexisting structures\u201d is essential for accurately assessing risks and securing the appropriate coverage, whether the owner is rehabbing entire buildings or individual units. In other words, your underwriter needs to know what property or units are under construction at any given point in time to ensure that specific property or unit is covered by your policy.<\/p>\n

Appropriately structuring the builder\u2019s risk coverage with a Permission to Occupy Endorsement and a \u201croll-off\u201d schedule can help developers manage insurance costs during rehabs. This strategy effectively reduces the time that your property is placed on a builder\u2019s risk policy, which typically would have higher rates than permanent property policies. Making sure your underwriter is aware of this construction timeline is essential to effectively managing risk during a rehab.<\/p>\n

Additionally, affordable housing developers should pursue contractual risk transfer to their general contractors, and to the GC\u2019s subcontractors, before the construction contract is finalized.<\/p>\n

Owners should ask themselves the following:<\/em><\/strong><\/p>\n