The owners of buildings that comply poorly with current engineering design standards, or otherwise appear vulnerable to earthquakes, are coming under increasing pressure.
We have already seen some corporate tenants demand that their buildings be upgraded to current earthquake design standards. Their landlords face either considerable expense or the loss of a desirable tenant. We expect this to become more frequent, particularly with Government/SOE and corporate tenants.
Of course insurance premium increases are already in the news and we expect to see greater scrutiny put on earthquake compliance, with some buildings facing huge premium increases and others being effectively uninsurable. The premium increases may to some extent be passed on to tenants, but will reduce a building’s desirability. Uninsurable buildings will plummet in value, at best.
One could also expect banks to tighten the availability and terms of credit in relation to vulnerable buildings.
All of which has lead to suggestions from inside the insurance industry that earthquake compliance could be an issue with similarities to the leaky homes crisis – with vulnerable buildings becoming something of a poisoned chalice.
As Kenny Rogers’ “Gambler” would put it, “You gotta know when to hold ’em, know when to fold ’em, know when to walk away and know when to run…”
A number of our clients have protected their portfolios by quietly selling some buildings before such issues materialise. We urge you to consider your own situation.