Underwriting for 3% insurance increase - is this a joke?

[Tommy Brant]

Hi BP family - hope you're well!

Wanted to pose this as a question while also ranting a little bit.

Curious to know if I'm the only one feeling strongly about this?

Some Background:

I'm very entrenched with multifamily syndication space, and I've noticed deal flow pick up since start of H2 2024. I'm on a LOT of people's email lists, and I see multiple investment offerings every day of the week. I've syndicated multifamily offerings myself, and I have deep seated opinions in underwriting and asset management.

There's one thing I seems to be consistent across the industry that I vehemently disagree with, and that's the expense escalator(YOY increases) for insurance.

I STILL see people underwriting for 3% YOY insurance increases. It's like the world hasn't changed dramatically in 5 years. 

Despite the fact that some markets were faced with 200% YOY increases this/last year, there doesn't seem to be a justification for this UW assumption. Hell - even our midwest property with no natural disasters was a 20% increase. IMO the insurance industry will be in catch up mode until natural disasters slow down (IF they slow down?). Until then, I'm anticipating consistent double digit increases in insurance YOY.

My Thoughts:

I personally think insurance expense escalators should have 5-10%(as an avg) expense escalators for the foreseeable future.

Am I alone in feeling this way?

Disclaimers:

Let's agree to disagree to that everyone has "conservative" underwriting. 😂 

Not every deal is truly a good deal. 

Thank you,

TB