Too many people in the Florida development industry are spending more time than they’d like to watching the summer skies (or, more likely, the TV weather forecasts) for storms and portents of storms.

While watching, they’re often worrying about or grousing with industry colleagues about the dramatically escalating costs of, and diminishing availability of, property insurance in Florida. The problem applies equally to homeowners and to the commercial side.

As this is written in the second week of August, Florida’s storm season has been uneventful (knock on wood). The National Oceanographic and Atmospheric Administration has recently lowered the number of predicted storms for this season. And most in the industry agree a relatively storm-free summer or two would help stabilize insurance costs — though stabilize them at a historically high level.

But most also agree than even a mild summer or two won’t fix the problem in the long term. We have every reason to believe that Floridians will have to endure stormier than usual summers, and their attendant physical and economic damage, for at least another decade.

I took a sample of industry opinions and insights on this issue from leaders of various sectors of commercial real estate. Below is some of what I found.

Asked to rate the seriousness of the insurance issue, Tampa land use attorney and real estate expert of experts Ron Weaver said succinctly, “Almost nuclear.” It’s hard to find anyone in the industry who will disagree with Weaver.

Ray Sandelli, senior managing director for Florida for CB Richard Ellis, is an energetic and optimistic guy. But even he concedes that out-of-control insurance costs, along with land costs, increasing taxes and infrastructure challenges, are cancelling out some of the advantages Florida has historically enjoyed against other states as a place to live and do business.

“The question is how well we’ll deal with these challenges,” Sandelli. “We have this issue, and we have to deal with it. It will have to be a joint public-private effort. But the key to the long-term future of Florida is how well we handle growth. If we do this right, insurance won’t be a fatal blow. How good our infrastructure is and how good the educational system is will determine our future.

“Florida still has a lot of things to be thankful for. Look at Phoenix. It’s 115 degrees there. And tornados in the Midwest. We’ll find a mechanism to provide insurance at an acceptable price. People who want to be here will deal with these issues — absolutely.”

Steve Tombrink, EVP and managing director of Grubb & Ellis/Commercial Florida, called the current insurance crisis the biggest problem facing the industry at least for the last decade.

“It’s the largest issue we face right now,” Tombrink said. “If you can’t get insurance on a piece of property, you can’t close. We haven’t had one where we couldn’t close yet because of insurance, but we’ve been close.”

Tombrink says many of his clients have had great difficulty finding insurance, and when they find it, it comes with an acute case of sticker shock. 

Tombrink said many tenants in commercial buildings will be in for some nasty surprises when bill-backs for insurance costs come due next February and March (for calendar 2006). Most commercial tenants’ leases allow landlords pass through costs, such as insurance. The lucky tenants are the ones with leases that put caps on these expense pass-throughs. But many will be paying the full freight.

Property owners that own large portfolios of assets in several states usually have blanket policies, and premiums on these have not escalated as severely as rates for properties exclusively in Florida or other Gulf states. But this is a small fraction of commercial real estate in Florida.

The issue is a complex one, with not everyone taking the same-sized hit. Your insurance costs can vary depending on how far from the coast your property is, what your building is constructed of, and how it’s constructed. Buildings constructed under Florida’s new and more strict building code catch a break on insurance rates. Experience demonstrates these building weather the storms better than older buildings.

Ted Starkey, Florida real estate manger for Wachovia Bank, has seen deals fall through because of insurance costs. He says some of his multi-family rental and retail clients have seen five-fold increased in their insurance rates in the last five months.

“This is very difficult all through Florida, for all property types,” Starkey said. “It’s a challenge for all the bankers. We’re trying to figure out what we should do and dealing with each situation as it comes up.

“We do what we can in each case. We’ve worked with customers to help negotiate deductible levels. It’s tough. We’ve absolutely seen deals that haven’t happened because of insurance costs.”

Starkey says the state government may have to play a more active role in the insurance issue, though because the problem has come up so quickly, no one is sure quite what that role should be. He says groups are starting to form now to study the problem. He adds that he is praying for a calm hurricane season.

Another savvy guy on the commercial side is Ken Jacobs, senior VP for Acordia Inc. in Tampa.

“It’s a supply and demand issue,” Jacobs said. “On the demand side, there has been big increases in construction costs and reconstruction costs. Because of this, there’s a lot more capacity needed in the state to meet the incredible increase in demand. But on the supply side, we have less supply than we’ve ever had.

“Two years of bad storms have scared off some of the carriers. And the ones still willing to do business in Florida are trying to get enough premiums so they feel comfortable staying here. And they’re trying to pass more of the risk on to the insured.”

Jacobs points out that, in fairness to insurance companies, their own financial ratings would be at risk if they didn’t lower their own risks.

Jacobs said there are probably some areas where the state of Florida could help the problem by removing some regulation from insurance companies. Opening the market a bit to competition would likely help both in affordability and availability.

“There’s not a Citizens-like answer for commercial insurance,” Jacobs said. “Just a thin sliver of commercial owners with buildings close to the coast can get $1 million of wind insurance from the Florida Wind Pool. Perhaps we could open up the JUA to commercial insurance, give (commercial owners) some place to go to get wind coverage.”

Jacobs also suggests there may be a role for the state in the re-insurance business.

“We’ve seen real estate deals and commercial developments not happen because there’s no builder’s risk available,” Jacobs said. “Builders risk (insurance) cost has increased more dramatically than rates for homeowners.”

Maybe so. This would be hard to quantify. But Doug Buck, director of governmental affairs for the Florida Home Builders Association, says homeowners rates have gone up more than enough, thank you. It’s been enough to push many people out of the home buying market, and it even presents challenges to people who already own their homes but are having a hard time meeting wildly escalating insurance costs.

“Many people on fixed incomes don’t have the financial wherewithal to pay $100, $200 a month in property insurance,” Buck said. “And if you lose your homeowners insurance, what’s the bank going to do? If insurance isn’t available, we’re in very serious circumstances.

“Insurance has to be affordable, available and sustainable. Right now we don’t have any of these things. If this keeps up, we could see a time that insurance and taxes start looking like the mortgage,” he said.

“Insurance is a necessary ingredient in real estate transactions. Without it the real estate market could crash with a thud.”

Buck points out that while Floridians from all points on the economic scale have suffered from insurance cost increases, the high costs aggravate the already difficult problem of providing affordable or work force housing.

“Affordable housing is driven not by the cost of product now but of the insurance on the product,” Buck said.

Like most with whom I discussed the issue, Buck is humble when asked what he thinks the solution would be. He said discussions he’s heard range from “throw it open to the private market and let rates find their own level to having the state assume the whole thing.” He added that no matter how the problem is addressed, “it aint going to go away soon, and the answer ain’t going to be cheap.”

There may be some help on the way in determining the best role for state government to play in ameliorating this problem. In early August, Gov. Jeb Bush created the 15-member Property and Casualty Reform Committee to look at ways to improve the delivery of property insurance to Floridians.

The committee is chaired by Lieutenant Gov. Toni Jennings and is made up of business and political leaders from across the state. It will report to Bush and to leaders of the Florida Legislature before the next regular legislative session.

Committee member State Sen. J.D. Alexander (R-Lake Wales) said he hopes there will be a special session on insurance in November or December. He says he is confident the committee can get a handle on the issue and come up with meaningful recommendations by that time.

The commercial real estate industry will be ably represented on the committee by Lee Arnold, CEO of Colliers Arnold.