The commercial market has slammed on the breaks as interest rates climbed to their highest in two decades this summer. Deals that used to fly are sitting and assets that would sell for premium value 16 months ago are trading hands at a near 30% reduction. For most of the country, the cost of debt dictates the decision-making process of both sellers and buyers. For us, we’ve been battling another expense for the last half-decade; insurance.
What has always separated Kodiak from our competition is our ability to close. We began investing in New Orleans, one of the most volatile and high-risk markets in the United States, where it costs $10,000 per year to insure your home and you go to sleep hoping the next Hurricane Ida doesn’t wipe out your project in a week’s time. As we expanded throughout the Gulf South, and now beyond, we’ve been able to leverage our experience in these adverse conditions to allow us to deploy our capital more efficiently across the U.S.
As we break into markets such Arizona, Nevada, and Texas, our investors can be rest assured that their investment is being efficiently deployed into an asset with solid growth potential and, more importantly, equity gained through the acquisition. As we underwrite dozens of deals each week, we utilize our experience working in such a high-expense market here in Louisiana to account for all contingencies in future assets. Our budgets are well-padded for worst-case scenarios, and we secure our debt and bind our insurance right away during our due diligence period to make sure our acquisition assumptions are correct and our NOI will be in-line with our investor’s expectations.
In the Gulf markets of New Orleans, Mobile, and Houston, to name a few, insurance will continue to be a major expense that will dictate the price in which properties change hands. It’s essential for all buyers to be aware of their overhead before completing an acquisition. Even if you are self-insured, it’s wise to receive a quote to be aware of the annual premium associated with the asset as this expense will likely have an impact on the NOI to future buyers.
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