Enhance the investment value of your Real Estate portfolio
28 August 2019
Estimated Read Time: 4 minutes
Professional investors spend significant time researching and analysing their portfolios to fully understand the risks and potential future returns. They also seek to balance their portfolio through a range of diversified investments. Commercial Real Estate is a particularly interesting class of investment and trusted insurance partners can provide more certainty for clients at the point at which they are making their property investment decisions.
NIG not only offers insurance products to protect commercial customers but we also act as an early warning system to help property investors increase their potential Return on Investment (ROI). We can help investors make informed decisions about their commercial property portfolios, particularly if we are engaged early in an acquisition.
In the case of property, “location, location, location” is a key driver of asset value. It’s equally important to consider this from a risk perspective and thorough due diligence at acquisition stage is critical:
- Is the property exposed to an increased flood risk?
- Are there increased exposure risks from surrounding properties?
- In the event of a fire is there access for fire-fighting activities?
Our expert teams of Commercial Underwriters and Risk Control Surveyors spend significant time assessing risk and visiting premises to ensure we really understand our customers’ businesses to provide the most appropriate insurance cover at the right price. If insurance costs are higher than expected or remedial action is required following acquisition this may adversely impact the overall return on investment. Having this valuable information pre-purchase can influence the decision to buy the property and helps prevent unexpected surprises post purchase.
To illustrate the point, consider this case study of a customer that our Risk Control Team worked with to improve their overall Commercial Real Estate portfolio risk.
Case study – the challenge
We were dealing with a real estate investor who was buying additional properties, which they would subsequently sell to maximise their ROI and change the mix of their portfolio. The challenge was that the investor was buying properties on occasion that were unattractive to an insurer. This was reflected in the premium rate applied or they had to commit to additional work to make the risk more acceptable. In the end the property they’d bought ended up costing more to improve and insure than they’d budgeted for.
We identified that within their organisation there was a disconnect between those buying the property or making the investment decisions, and those who had to manage the consequences of that investment decision. The solution – to bring risk management into focus.
Our approach – identifying risks and protecting the asset
We explained to them what proactive actions could be taken to mitigate the portfolio risk. This gave the investors insight into issues that might cost them down the line, which had they known in advance might have impacted their decision to buy the property. Or made an offer at a different level at the start of the negotiation.
The approach taken by the Risk Control Team was to conduct a workshop with the group making the purchase decisions, to build a better awareness of the risks to the assets they were buying. Specifically, the main risks were the low-quality construction of the properties and the presence or otherwise of combustible materials in composite panels. These would affect the acceptability of the risk and the premium that would be charged.
By engaging with the business stakeholders at an early stage we were able to:
- Offer risk management research and advice, allowing the client to gain faster access to insurance
- Provide comments on the information and documentation the client shared with us at the start of the acquisition process
In doing so, we effectively formed part of the client’s due diligence process prior to the acquisition.
As a result, the client had better information and were more aware of the insurance considerations. The outcome was that our Risk Control Team got closer to the customer and they are now more proactive in coming to us, which is making a difference to offers on property purchases going forward. Or they’ve walked away from a few deals that might alternatively have been brought into their portfolio. This means that the quality of their overall portfolio, from an insurance and strategic investment perspective, is better.
To summarise: it’s about location, location, location and education, education, education. Become better informed and engaged early in the due diligence process to make the right choice.
Ready to trade with us?
Our Risk Control Team is ready and waiting to provide you with comprehensive risk management support. The team works closely with our underwriters to provide you with risk management tailored to your specific needs. For more information speak to your Real Estate Underwriter.