What Is Commercial Real Estate?
Today’s real estate market encompasses many different types of properties – residential, commercial, agricultural, mixed use, and special purpose. In terms of property volume and profit potential, residential and commercial real estate are the biggest players. And both require very specific types of commercial insurance coverage.
Commercial real estate is property that’s used for the purpose of conducting business. Unlike residential real estate, which is used for private living, commercial real estate includes land and buildings where business owners and hired employees perform commercial transactions, professional services, and work-related activities.
Residential rental properties are also included in this category due to the income potential for property owners.
Classifications of Commercial Real Estate
The term commercial real estate covers a wide range of buildings, structures, and property types. Depending on a building’s function, commercial real estate is generally categorized into four main classes – office space, industrial use, multi-family rental, and retail. These classifications can be broken down and categorized even further, as you’ll discover here:
Office Space
Office buildings are first classified by their height, ranging from low-rise to skyscraper. Additionally, office buildings are categorized into one of three groups – Class A, B or C.
Class A
Class A represents exceptional building status in regards to location, construction, aesthetics, age, and quality of infrastructure. These buildings are rated as the best in office real estate.
Class B
Class B buildings may have good construction, but a less desirable location. These buildings are usually older and not as competitive as Class A structures. But they’re prime candidates for restoration.
Class C
Class C buildings represent the oldest office structures, usually located in less sought-after areas. These structures can be fairly run down, and often require significant maintenance to meet current building codes.
Industrial Use
Industrial properties also vary quite a bit depending on their specific end use, whether it’s heavy manufacturing or light assembly. Flex warehouse and bulk warehouse spaces also fall into this general category.
Multi-family Rental
Multi-family rental properties can serve as a primary residence for the owner, but their intended purpose is typically for investment and earnings, whether owner-occupied or not. Multi-family property assets range from a small duplex housing unit, all the way to a high-rise apartment building with hundreds of individual rental units.
Retail
Retail-based real estate is as diverse as the types of retailers that draw customers into the property space. Strip centers are typically the smallest, followed by mid-size lifestyle centers, then large regional shopping malls featuring multiple big-box retailers and department store anchors.
Who Needs Commercial Real Estate Insurance?
If you own or manage any type of commercial real estate business listed above, you are going to need a commercial insurance policy. Commercial insurance packages protect your company’s physical assets from many unforeseen, unexpected events, such as theft, vandalism, fire, explosions, burst pipes, storm damage, and more.
It’s also necessary for most licensed real estate professionals to have commercial business insurance. Secure coverage is helpful if you or your staff are:
- Licensed real estate agents
- Brokers (insurance brokers can also help you compare coverage options)
- Property managers
- Appraisers
- Property developers and landlords
Commercial real estate insurance packages help cover any incurred expenses during construction, renting, or leasing. This includes loss or damage to the actual property, any equipment, plus public or private liability claims.
Types of Commercial Real Estate Insurance Policies
When choosing commercial insurance packages, no two businesses are the same. Every company has their own unique requirements regarding the right commercial insurance policy. Real estate businesses in particular should select from core insurance packages, then add on as needed to reduce potential risks.
General Liability Insurance Policy
General liability policies protect real estate companies and other commercial real estate businesses against injury, advertising, and property damage claims. In the event of a lawsuit, a commercial insurance policy for general liability should cover basic court expenses, witness and attorney fees, plus any settlement costs.
Umbrella Insurance Policies
Umbrella insurance is additional coverage that offers protection beyond the existing limits of core commercial insurance packages. For commercial real estate companies, umbrella policies cover claims that may be excluded from other liability packages. This could include false arrest, libel, slander, and liability coverage for owned rental units.
Commercial Property Insurance
If your commercial real estate company owns or rents office space, commercial property insurance is essential. Also known as business hazard insurance, this commercial insurance policy protects buildings, physical contents, equipment, and property features, such as glass, from loss and damage due to fire, theft, and natural disasters.
Commercial Auto Insurance
Commercial real estate and property development companies that use business vehicles should have them covered under commercial auto insurance, part of your overall commercial insurance packages. These policies offer liability protection that pays for damages and injuries due to accidents involving cars, trucks, vans, or other commercial vehicles.
Business Income Insurance
Also known as business interruption coverage, this type of commercial insurance policy helps cover lost income and additional expenses when a business is shut down from a covered loss. For landlords and property owners, these policies can replace loss of rental income due to a covered claim.
Builders Risk Insurance
This commercial insurance policy covers structures being built, along with equipment and materials used on the construction site. Companies are often able to buy these policies on a per-project basis, and add them on at any time as part of their commercial insurance packages.
Water Backup and Flood Insurance
These specialized policies can be beneficial to commercial real estate owners. Flood insurance covers damages and expenses due to flooding from a natural disaster, such as a rainstorm or an overflowing body of water.
Alternatively, water backup insurance, part of tailored commercial insurance packages, is specific to issues caused by systems inside or near a commercial property, including sewer lines, sump pumps, appliances, and drainage systems.
Finding the Right Commercial Real Estate Insurance
If you’re interested in buying commercial insurance for your real estate business, Williams and Case can help. Since 1946, we’ve been the trusted insurance broker for companies in need of commercial insurance packages tailored to their industry. We partner with leading experts to create customized commercial insurance policies for every type of commercial real estate property.
Learn more about keeping your business well protected with a commercial insurance package provided by Williams and Case Insurance Agency. Have questions? Reach out to our experienced team today.