Do I need builders risk insurance during an apartment renovation?
Yes, major renovations involving structural work, roof replacement, or gut rehabs typically require builders risk coverage because the standard property policy may not cover construction-phase risks.
When an apartment building undergoes a major renovation, the standard commercial property policy may not adequately cover the project. Most property policies contain exclusions or limitations for buildings under construction or renovation, particularly when the scope involves structural changes, gut rehabilitation, or when more than a specified percentage of units are vacated for the work. The ISO vacancy clause (CP 00 90) can reduce coverage by 15% and eliminate certain perils when the building falls below 31% occupancy for more than 60 days during renovation.
Builders risk insurance fills this gap by covering the building, materials, and work in progress during the renovation. For apartment rehabs, the policy should cover the existing structure (if not adequately covered by the property policy during construction), new materials and equipment installed or stored on-site, soft costs including architectural fees, permit costs, and loan interest during delays caused by covered losses, and temporary structures such as scaffolding.
HUD's MAP Guide requires builders risk coverage for all Section 221(d)(4) substantial rehabilitation projects, with coverage equal to 100% of the completed project value. Fannie Mae's Multifamily Selling and Servicing Guide requires builders risk for any renovation that exceeds 20% of the property value. The policy period should extend from demolition through completion and issuance of a certificate of occupancy. Most builders risk policies are written on a completed value form, meaning the full project value is covered from day one without the need to report values monthly.