Business Interruptions From Natural Disasters A Top Concern For REITs
Business interruption risks associated with natural disasters are a large concern for the 100 biggest publicly traded REITs, according to BDO’s 2016 RiskFactor Report for REITs.
As was the case in Hurricane Matthew, the mass evacuation of nearly 2 million people throughout Florida, Georgia and South Carolina had a huge impact on commercial property—from retailers to new projects under construction.
At present, damages left by Hurricane Matthew fall within $4B and $6B, a far cry from the $35B to $45B that resulted from Hurricane Katrina, or the $15B to $20B following Hurricane Sandy in 2012, according to CoreLogic analysis.
Prepping for business disruption is key, as potential uninsured losses can quickly add up.
“From an insurance perspective, the biggest thing is you don’t need physical damage to trigger an insurance claim,” BDO forensic insurance and recovery practice leader Clark Schweers tells Bisnow. From ingress/egress coverage, to civil authority or loss of attraction coverage, there are dozens of polices available to cushion the blow of business disruption.
Growing geopolitical tension and the increased likelihood of terrorism events in major US cities also are contributing to REITs’ growing concerns. Business interruption worries are plaguing 97% of the 100 REITs surveyed this year, up from the 92% of REITs that considered business interruption a top concern last year.
“Point being is that all of these types of provisions are important to consider when determining the financial impact to the business and whether you have the ability to cover that through insurance mechanisms,” Clark says.