Federal Pacific Electric Panels must be replaced??

[Ki Lee]

I have a 36-unit property under contract in Columbus, OH.  It's built in 1963 and has the old Federal Pacific electric panels.  The inspector said they present some fire hazard and some insurance carriers will not insure them.  Google articles seem to say that they are fairly dangerous.  How many of you have buildings with Fed Pac Panels?  How real are the hazard/dangers with them?  Are they over-sensationalized?  Trying to find the balance between being safe and also being mindful of spending too much.  It can cost up to $50K to replace all the panels.  And being a class C apartment, I want to try to be really lean and efficient.  It looks like I can find an insurance carrier that will cover the building.  Do you think that I can get by without replacing the panels?  Or is this a huge time bomb waiting to explode?  Millions of these have been installed from the 60's to the 90's and surely we don't have buildings burning down left and right?

[Brian Burke]

Not only do some insurance carriers dislike them, so do some lenders.  Fannie Mae has published guidelines related to these panels and they require the replacement of the panels in order for them to originate a loan on the property.  However, this requirement can oftentimes be avoided if you can get a licensed electrician to inspect the panels and write a letter saying that they are stable and safe.  Sometimes you can get that letter, sometimes you can't.  If you can't, replacement is your only option if you want agency financing.

Insurance companies are similar in that some will just flat-out refuse to write the policy.  Others will write, but at a much higher rate.  If your replacement cost is $50K, at a 6% cap rate your break-even point is $3,000 per year.  In other words, if your policy with the panels remaining is $1,000 higher than if you replaced them, leaving them alone is a better option.  But if the premium is $4,000 higher replacing them is the better approach because $4,000 of extra income at a 6% cap rate is worth $66,000 of additional property value.

This issue only applies to the "Stab-Lok" variety of the Federal Pacific Electric line of panels.  Other panels by that manufacturer are not affected by this issue.  Zinsco panels are the next ones to pop up on radars--I haven't seen resistance from lenders yet, but insurance carriers are starting to upcharge when those panels are in place.

Are these a hazard?  Who knows, really.  I have a Zinsco panel on my house and in the 20 years I've lived here haven't had a single problem.  But I guess that doesn't mean that my house won't burn down tomorrow--maybe my number just hasn't come up.