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Landlords and developers are increasingly seeking flexibility from their lenders on insurance coverage, but with little success. Kevin Kaseff, a developer with a diverse portfolio including senior housing and cold-storage properties, notes that lenders are becoming increasingly jittery about insurance.

For over two years, commercial real estate has been battered by postpandemic vacancies and rising debt payments. Although these issues are beginning to wane, property owners of strip malls, apartment buildings, and office towers now face a more enduring challenge: skyrocketing insurance costs.

This predicament mirrors what many homeowners across the country are experiencing. The uptick in climate-related natural disasters has led insurers to either significantly hike rates or withdraw from certain markets. Coastal cities and towns most vulnerable to severe storms and flooding have seen the sharpest increases, though insurers and banks are acknowledging that virtually no area is safe from extreme weather events.

A stark illustration of this was Hurricane Helene, which devastated Florida's gulf coast before causing extensive flooding and landslides in Georgia and the Carolinas. Reinsurance broker Gallagher Re estimates the hurricane inflicted at least $35 billion in economic losses.

Adding to the conundrum, building owners find themselves squeezed between their insurers and lenders. Lenders, wary of potential catastrophic damage, are reluctant to permit even minor policy changes, leaving struggling borrowers with little room to maneuver. While comprehensive data on foreclosures due solely to insurance costs is lacking, industry insiders report that deals do collapse over such issues. In a sector already grappling with rising interest rates and higher expenses for materials and labor, insurance costs sometimes become the tipping point.

"This current interest-rate environment has exposed the people that know what they're doing and those that don't," said Mario Kilifarski, head of asset management at New York-based Fundamental Advisors, which manages $3.5 billion in assets.

Insurance brokerage Marsh McLennan reported that commercial property premiums jumped by an average of 11 percent nationwide last year. However, premiums surged by as much as 50 percent in storm-prone areas like the Gulf Coast and California. This year, rates may have doubled in some of these vulnerable regions, according to the brokerage.

Landlords and developers now face a fraught landscape, where the struggle to secure affordable insurance coverage adds one more layer of complexity to an already challenging environment.