Coverage — commercial property
Commercial property insurance, written for multifamily.
This is not the generic definition page. It is what commercial property coverage actually does on a multifamily asset: an apartment community, a portfolio of garden stock, a mid-rise you just went under contract on. What it covers, when you need it, what your lender will ask for, and the places deals and claims commonly go wrong.
What it covers
What it covers on a multifamily property, specifically.
A commercial property policy on a multifamily asset is really three covers wearing one coat: the building, the income the building produces, and the cost of bringing an older building up to current code after a loss. Owners who read their policy as “the building” alone discover the other two at the worst possible time.
The building itself
The structure, plus the things that are permanently part of it: roofs, mechanical systems, elevators, clubhouses, fitness centers, pools and their enclosures, fencing, signage, and the detached structures, the one people forget. Carports, maintenance shops, laundry buildings, and gatehouses are covered property, and on garden-style Texas and Florida stock they can be a meaningful share of the replacement cost. If your schedule does not list them, your limit may be right for the buildings and wrong for the property.
What is inside the units matters less than owners expect. Tenant belongings are the tenant’s problem. That is what renters insurance is for, and it is why many owners require it in the lease. Your policy responds to the shell, the systems, and any contents you own: office equipment, maintenance tools, model-unit furniture, fitness equipment.
Loss of rents
The building burns, the roof comes off in a named storm, a pipe failure guts a stack of units. The repair takes months, and the rent roll does not wait. Loss of rents (business income) coverage replaces the rental income you lose while the property is being restored, and it is the coverage that keeps the debt service current during the rebuild. Two things to check: the indemnity period (twelve months is common; a serious fire on a large asset can outrun it) and whether the limit reflects actual rents or a stale number from three renewals ago.
Ordinance or law
The least understood line on the policy, and the one that matters most on 1970s and 1980s stock. When a covered loss damages an older building, the rebuild does not happen under the code the building was built to. It happens under today’s code. Current Florida wind-load requirements, current electrical code, current accessibility rules, current fire suppression standards. The gap between “put it back the way it was” and “build it the way the code now requires” is real money, and the base policy does not pay it. Ordinance or law coverage exists to fill that gap, in three pieces: the undamaged portion the city makes you tear down anyway, the demolition cost, and the increased cost of construction. On a 1978 frame property with a major loss, this is not a rounding error.
Equipment breakdown
Standard property policies cover fire, wind, and the rest of the named perils. They do not cover a boiler or chiller that simply fails. Equipment breakdown fills that: HVAC systems, boilers, electrical panels, elevators. On older assets with aging mechanicals it is cheap relative to the exposure.
Named storm versus everything else
In Texas and Florida, the single most important distinction on the policy is the difference between “wind” and “named storm.” A thunderstorm that tears shingles off is a wind loss at your standard deductible. A hurricane that does the same damage is a named-storm loss at a percentage deductible: typically 2% to 5% of the insured value, not of the claim. On a $20 million schedule, a 3% named-storm deductible is $600,000 out of pocket before the policy pays a dollar. Owners who budget deductibles as flat dollars get a very bad letter after a hurricane.
When owners actually need it
The trigger events.
Nobody shops for property insurance as a hobby. It comes up at four moments, and each has its own clock and its own failure mode.
Acquisition
The most common trigger, and the one with the least slack. Your lender requires evidence of insurance at closing, with the mortgagee and loss payee clauses in place and the deductibles inside their caps. The failure mode is treating insurance as a week-of-closing task: flood in a special flood hazard area is a separate policy with its own timeline, valuation disputes take days to resolve, and a named-storm deductible above the lender’s cap has to be renegotiated or restructured. The right time to price insurance on an acquisition is during due diligence, when the number can still move the pro forma. That is what our Due Diligence team is for.
Refinance
Same requirements, friendlier clock, one trap: the existing policy was written for the old loan. New lender means new certificate holder, new loss payee, and a fresh look at whether the limits still reflect current construction costs. A refi is also the natural moment to fix valuation drift, because the lender’s appraisal is already on the table.
Renewal
The annual decision most owners sleepwalk through. Renewal is the only scheduled chance to correct valuation, revisit deductible structure, update the rent roll behind loss-of-rents limits, and report the roof replacement and system updates that change how underwriters see the risk. Owners who send updated information into a renewal get materially better outcomes than owners who sign what arrives. Underwriters price what they can verify.
After a loss
The worst time to learn your policy, but a real trigger. A claim teaches you what your valuation actually was, what your deductible structure actually meant, and whether ordinance-or-law limits were decorative or real. Owners who have been through one claim read their renewal paperwork differently forever.
What lenders typically require
What your lender will ask for.
Lender insurance requirements are not arbitrary. Every clause in the loan documents maps to a way the lender loses money, and knowing the map makes the negotiation faster.
Replacement cost, and the coinsurance clause behind it
Lenders want the property insured to full replacement cost, and the enforcement mechanism is the coinsurance clause. Most multifamily policies carry 80% or 90% coinsurance: insure to at least that percentage of true replacement cost, or claim payments get reduced in proportion to the shortfall. The math is brutal and simple. Say a building’s true replacement cost is $10 million, the policy carries 80% coinsurance, and the owner insures it for $6 million to save premium. The requirement is $8 million; the owner is carrying 75% of the requirement. A $1 million partial loss, say a fire that guts one building of eight, pays $750,000, minus the deductible. The owner just self-insured a quarter of the loss without ever deciding to.
Coinsurance penalties almost never come from owners gambling deliberately. They come from valuation drift: the policy was written at a defensible number in 2022, construction costs ran, and nobody moved the limit. This is the single most common way a multifamily claim goes sideways, and it is completely preventable with an annual valuation review.
Deductible structure
Lenders cap deductibles, and in coastal markets the cap that matters is the named-storm percentage. A lender who allows 2% will not close on a policy written at 5%. This surfaces late when nobody checks it early, and it is one of the first things we verify on an under-contract file.
Loss payee and mortgagee clauses
The endorsements that route claim payments through the lender and protect the lender’s interest even if the borrower does something that would otherwise jeopardize coverage. These live on the policy, not the certificate, which is why certificate requests and endorsement requests are different asks with different clocks.
Flood, separately
Flood has always been excluded from standard commercial property policies. If the property sits in a special flood hazard area, the lender requires a separate flood policy, NFIP or private. The trap is the timeline: NFIP policies have a 30-day waiting period in most cases. A borrower who orders flood the week of closing moves the closing.
Underwriters price what they can verify.
How the price gets made
How the price gets made.
Multifamily property pricing starts as a rate per $100 of insured value, then gets adjusted by a short list of factors. Most of them are knowable before you buy, and several are things an owner can actually move. None of it should be mysterious.
Construction class
Frame burns, joisted masonry burns slower, non-combustible slowest. On the same building in the same zip code, the rate spread between frame and non-combustible can approach two times. This is the single biggest pricing factor after location, and it is the one you cannot change after the fact.
Distance to coast
In Texas and Florida, wind models drive the price more than any other factor. Distance to the coast, roof shape (hip roofs outperform gables), roof covering, and whether the openings are protected all feed the model. Two otherwise identical properties forty miles apart on the Gulf can price a third apart.
Age and updates
The year built matters less than what has been replaced. Roof, electrical panels, plumbing, HVAC: a 1978 property with a 2023 roof and updated systems underwrites like a different building than the same property with original systems. Documentation is what converts updates into price. Invoices, permits, and photos win; “the seller said it was updated” does not.
Protection class
The ISO fire rating for the property’s location: distance to the nearest hydrant, the quality of the responding fire station. Mostly outside your control, but it explains why a rural deal can price harder than an urban one with worse construction.
Loss history
Five years of loss runs come with every submission. Frequency reads worse than severity: three small water losses predict a fourth, while one large fire reads as bad luck. Water is the frequency peril on multifamily, which is why underwriters ask about plumbing supply lines and water heaters.
Occupancy and tenant profile
Student housing, senior living, subsidized, short-term rental: different risk, different rate, sometimes different program entirely. Be upfront about the tenant mix, because discovering it after binding is how rescission conversations start.
Replacement cost is not market value
Insurance pays to rebuild the structure, not to repurchase the deal. Land does not burn. In appreciating markets the purchase price can run ahead of replacement cost; in others the deal price trails what a rebuild would actually cost. Lenders and carriers both anchor to replacement cost, and confusing the two is how owners end up over-insured on paper and under-insured in fact.
When you get an indication, ask which of these moved the number. The answer should come back in plain terms, and if it doesn’t, that tells you something too.
What commonly goes wrong
What commonly goes wrong.
This is the section most coverage pages skip, because it is uncomfortable. A sophisticated buyer should read it twice. These are the failure modes we see on real multifamily claims and placements, in roughly the order we see them.
1. Undervaluation discovered at claim time
Covered above, but it bears repeating because it is the champion. The policy renews three times on autopilot, construction costs move 30%, and the coinsurance penalty converts a covered loss into a partly self-funded one. The fix is boring: a valuation review every renewal, with real replacement-cost data instead of last year’s number plus a guess.
2. The percentage deductible misunderstood as flat dollars
“My deductible is $25,000.” No. Your all-other-perils deductible is $25,000. Your named-storm deductible is 3% of insured value. On a $15 million schedule that is $450,000. Owners learn this in the claim acknowledgement letter, and it changes reserve math overnight. Know both numbers, in dollars, before storm season.
3. Ordinance-or-law limits that are decorative
The coverage is on the policy, the limit is $250,000, and the actual code-upgrade exposure on a 1982 property with a major loss is seven figures. Ordinance or law is one of those limits that gets set once and never revisited. On pre-1990 stock it deserves a real number, not a default.
4. Flood assumed, flood excluded
After a hurricane, the water damage conversation splits in two: wind-driven rain (covered, named-storm deductible) versus rising water (flood, excluded without a flood policy). Owners in “low-risk” zones skip flood, then discover that a third of flood claims come from outside the high-risk zones. Whether to carry flood outside the required zones is a real decision. Just make it a decision, not an assumption.
5. Vacancy and renovation clauses triggered by the business plan
Value-add business plans collide with policy terms. Most property policies restrict coverage when a building is vacant beyond a threshold, commonly 60 days, and many restrict or exclude coverage during renovation unless the carrier agrees to it. An owner who takes a building down to studs for a unit-turn program without telling anyone may be running the riskiest phase of the project with the least coverage. The fix is a conversation and an endorsement, or a builder’s risk policy for the heavy phase. Either way: before the work starts, not after the fire.
6. Roofs: ACV where you thought you had replacement cost
Carriers have spent years moving older roofs to actual cash value or cosmetic-damage limitations, and the schedule page is where that change hides. A 20-year-old roof on replacement cost versus ACV is a six-figure difference on a hail claim. Check the roof settlement basis every renewal, and report roof replacements. They change both the price and the terms.
7. The LLC not named on the policy
Deals close, entities change, and the named insured on the policy stays the old LLC for two renewals. A claim arrives and the entity that owns the building is not the entity on the policy. It usually gets fixed, but “usually” is doing a lot of work in that sentence. When the ownership entity changes, the policy changes with it, same week.
Related
Related pages.
Price it
See what your property costs to insure.
Thirty seconds, a real person, a real number