When discussing the topic of business property insurance, it is helpful to know about all the different types of business property types.
For most businesses, apartments or multi-family or business units are generally one of the top choices for new commercial investors. Both apartment management and financing is quite similar to residential, creating a sense of comfort for the investor. The disadvantage to having an apartment for your business is that they can be management intensive, and limiting in some aspects.
For an apartment to be considered business property, it is required to have five or more units. Some apartment types include low-rise garden apartments, mid-rise apartments, high-rise apartments, student housing, military housing, townhouse style apartments, and co-op apartments.
If you are looking at properties to purchase, pay special attention to both the general market of the area as well as the location. You do not want to set up your business location in an economically depressed or seasonal area. In addition, the property should have some level of aesthetic appeal in order to be competitive with market standards. Minimum occupancy must be at least 85%.
In terms of business property insurance, if the property you are evaluating has inferior physical characteristics, and/or is in an economically depressed area, this may garner a higher interest rate on loans, higher reserves, and especially tight underwriting constraints.
Properties utilized for retail purposes and that are occupied by one or more tenants are referred to as retail properties. There are multiple kinds of retail properties, including free standing retail or strip center properties with an anchor tenant; unanchored retail center properties; and single tenant investment grade retail properties.
A free standing retail or strip center with an anchor tenant are occupied by well known commercial retail businesses, such as national chain stores or regional department stores. They are methodically placed in a shopping center in order to generate the highest amount of customers for all of the stores situated within the shopping center.
An unanchored retail center property is a center that is occupied by several tenants, none of which are anchor tenants.
Single tenant investment grade retail properties are those that are net leased to one investment grade tenant with a BBB rating or higher.
Perhaps the most typical property type in the field of business property insurance is the standard office space. Different categories of offices include suburban garden offices, suburban high rise offices, medical offices, and central business district offices.
Office buildings are required to have a minimum of 85% occupancy and should be located on or near a main thoroughfare. Additionally, they should be easily accessible. Office properties with more than 20% of total revenue from owner occupied or owner affiliated tenants will typically incur a higher interest rate on any business loans.
Mixed-use properties include a combination of any of the above property types. In cases of real estate development, mixed-use properties should balance one another.
Healthcare property types include nursing homes, congregate care, and assisted living centers. These types of properties are recommended to be close to retail and community services, and should not be in economically depressed or seasonal areas. Additionally, these properties should comply with the American Disabilities Act (ADA) in order to receive the proper business property insurance policy.
When looking into business property insurance, you will find that hotels are characterized as either full service or limited service. Full service hotels can be expanded to include luxury, upscale, mid-scale, and even extended stay hotels. Limited service hotels include mid-scale, economy, budget, and extended stay hotels as well.
If you are considering investing in a hotel property, make sure that the property has a stable operational history. For example, you do not want to invest in a hotel property with a history of just four years or less.
The minimum acceptable occupancy for a hotel is 60 percent. If seeking a business loan with the property, know that lenders prefer franchise affiliated hotels with franchise agreements that extend beyond the term of the proposed loan.
As the name suggests, industrial properties are used for industrial purposes only. Some of the purposes may be warehouse-single tenant, warehouse-multi tenant; manufacturing, research and development, flex space, light industrial, and heavy industrial.
Business property insurance covers businesses in all of the property types above, and other specialty properties, such as self storage, gas stations, oil change facilities, and more.