Five top risks facing real estate owners and management companies

Businesses of all types face a variety of risks, but real estate owners and management companies confront unique challenges that can be the difference between a profitable investment and a money pit.

The risks in real estate run the gamut — from devastating fires and costly water damage to liability lawsuits to the security risks of multi-tenant buildings.

In this article, we’ll look at some of the top risks that keep real estate owners and management companies up at night.

5. Multi-tenant locations

Being a good neighbor has never been more important than now. But for real estate owners and managers, harmonious cohabitation is more than just a friendly “hello” in the lobby.

The risks for multi-tenant locations are exacerbated by the fact that multiple tenants are forced to coexist. That’s a perfectly reasonable expectation, until the bathtub in the fifth-floor apartment overflows, sending a steady stream of soapy bathwater to the fourth, third, second and first floors. Or when a grease fire from the first-floor restaurant exhales a thick, black plume of smoke to the upper floors, forcing the residents to evacuate.

4. Repairs and renovations

If you own or manage real estate, you’re responsible for repairs and will likely need to consider renovations to accommodate new tenants or to simply upgrade your properties. Repairs and renovations are usually worthwhile investments, but things can go horribly wrong if the work in not adequately managed or the contractors and subcontractors are not properly vetted.

While contractors are typically brought in to improve a property, the opposite can result. Most fulfill their assigned duties, but sometimes a repair or renovation job can turn to disaster. Any time hot work (brazing, soldering, welding, etc.) is involved, the risk of fire should be considered. Even oily rags left behind at a job site have been known to spontaneously combust. New electrical wiring can also lead to fires.

Often, renovation errors can lead to water damage and major financial losses. It is not unusual to puncture a water pipe while making building improvements, as most plumbing is hidden behind walls.

Also, with multiple contractors on site to complete a complex renovation job with a tight deadline, it’s not uncommon for a plumber to install water pipes and a drywall contractor to close the wall before inspections can be completed. If there is a leak in the pipes, it may not be discovered until well after the costly damage is done.

3. Slips, trips and falls

Slips, trips and falls may sound like the name of an amusement park ride, but there’s nothing amusing about it for real estate owners and managers. They remain a serious liability hazard for nearly all types of businesses, but particularly those with public spaces, like retail establishments, office buildings, apartments and others. In fact, 50% of all Workers’ Compensation claims are caused by slips, trips and falls along with strains, generating average costs of $16,546 per claim.

As a real estate owner or manager, you’ll naturally want to keep employees, contractors, visitors and the public safe from injuries. But aside from the public health issue, the costs of slip, trip and fall incidents can significantly impact the bottom line.

Here are some of the key risk factors that commonly result in slip, and fall claims:

• Surface composition and slip-resistance
• Foreign substances on a walking surface
• Surface conditions and changes
• Level changes
• Obstructions
• Visibility
• Stairs
• Unusual features
• Human factors

 Management's role in slip, trip and fall prevention is critical.

2. Contractual liability

Real estate owners and management companies need to confirm that every contractor — including those hired for work such as painting, renovations, janitorial services or snow removal — is properly insured and has an up-to-date general liability policy. If only it were that simple. The truth is that one cannot simply ask contractors if they are insured.

It’s important to have in place the proper contract language with contractors and subcontractors, combined with implementing controls to ensure contract compliance, so that owners and developers can transfer their liability risk to parties who are directly responsible for a safe working environment.

Zurich has compiled seven steps to help real estate businesses manage their vendor contracts:

• Obtain certificates of insurance.
• Confirm adequate insurance limits.
• Ensure valid insurance coverage.
• Create a file for certificates.
• Verify expiration date.
• Request additional insured status.
• Require a hold-harmless clause.

1. Maintaining building infrastructure

Once you decide to become a landlord, you assume responsibility for maintaining the basic infrastructure of the building and the surrounding property. This is true for apartment buildings and commercial facilities, single-tenant or multi-tenant. Failure to adequately maintain the infrastructure could lead to major property and liability losses.

Assuming the walls of your building are sound and not in danger of imminent collapse, what else is there to worry about?

Start with the roof. If the roof of your building in unable to keep out rain or support a heavy load of snow, the resulting water damage inside the building could cost you a fortune and force your tenants to move to a new location.

Heavy rain and snow aren’t the only ways to cause significant water damage in a building. In fact, most water damage claims are “inside jobs” — burst or leaky sprinkler systems or plumbing that destroys walls and floors from the top floor down. Nothing lasts forever and that adage rings true when it comes to pipes and preventing water intrusion, especially in older buildings.

The electrical wiring in a building can also be cause for concern if it is not properly maintained. Electrical fires remain one of the most common causes of building fires.

Even something as simple as fixing the inevitable sidewalk cracks can help prevent a costly lawsuit from building visitors or passersby who may trip and injure themselves.

The bottom line

The risks real estate owners and managers face are broad and varied. Fires, water damage (flooding and broken pipes), liability lawsuits … these are just some of the issues you’ll need to address.

The good news is that you don’t have to go it alone. Read about Zurich solutions and risk insights for real estate owners and managers.

Learn about key global risks in the Global Risks Report 2021.