Lessons from Christchurch

Posted on Thursday, January 8 2015

It’s a bad storm that has no silver lining and the Christchurch earthquake is no exception. Quite apart from the sudden and unprecedented demand for space outside of the CBD to replace the affected buildings, commercial owners elsewhere are learning lessons from the disaster.

Foremost of these is that relating to insurance issues and in particular, the matter of Loss of Rents Insurance. Prior to the disaster, it was common practice for commercial property owners to insure against loss of rents as a result of fire, flood or other disaster with the period covered usually being 18 months.

However, what this disaster has shown is that 18 months may very well not be sufficient when there is a disaster of this magnitude and whole areas are affected. Previously, the rationale was that the 18 month period was sufficient if you were dealing with replacing just one building. I don’t believe that anyone, including the insurers, had considered the impact of a large scale disaster in terms of what it meant for the time-frame to get properties rebuilt.

I know that they are certainly aware of it now and anyone wanting insurance for a period longer than 18 months will be paying hefty premiums indeed. Of course, if the property was heavily geared and the owner was relying on the rentals to service the mortgage then the hefty insurance premiums may not be so unattractive and indeed, may be almost compulsory.
In any event, it is just one more issue to consider when looking at your insurance needs next time.

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Denis McMahon

Brought to you by Property Managers Ltd: Pacific Property has been formed with the aim of building, over time, a diversified portfolio of Industrial, Retail and Commercial properties to provide strong sustainable returns to investors which will be managed by experienced property manager, Property Managers Limited (PML). The directors of Pacific Property Fund are Denis McMahon and Philip Tushingham, who together have over 45 years of experience in investing in, and managing commercial properties. “Pacific Property presents an opportunity for investors to invest in a brand new quality industrial building in Mount Maunganui and to join us as we build a quality commercial property portfolio diversified both geographically and across industrial, retail, and commercial assets.”

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