Property management

Are You Prepared?

Disaster management plans help owners protect their investments.

WHETHER your client owns a lavish hotel, an architecturally unique skyscraper, or a run-of-the mill strip mall, such valuable investments can be rendered worthless in the wake of unanticipated catastrophic events. While disaster management planning is likely to be low on commercial property owners' to-do lists, unexpected events such as Hurricane Katrina, urban electrical blackouts, and the Sept. 11 terrorist attacks have demonstrated the importance of having a disaster management strategy.

Unfortunately in today's world all property owners must anticipate the unthinkable and develop a working disaster management plan that can be adapted easily to any threat, incident, or catastrophe. Such a plan provides a road map that, if followed, will help to preserve the property owner's business objectives, properly safeguard the investment, facilitate a return to normal operations, and minimize sustained damages. Owners can prepare for disasters by identifying issues that are essential to a commercial property's survival and developing a detailed plan in conjunction with a preparedness manual to help mitigate damages.

Identify Potential Risks

A necessary first step in preparing for disasters is to realistically identify and assess potential known risks and attempt to anticipate those that are unknown.

To this end, commercial real estate owners should order a comprehensive review and analysis of their properties' structural integrity. Each building's mechanical, electrical, and plumbing systems should be reviewed by licensed professionals and the results clearly and completely documented. The evaluation should include all elevator/escalator systems, as well as determine whether required life safety and fireproofing meet or exceed building code standards. Additionally, a sufficient land survey should be conducted to highlight any possible vulnerabilities such as flood-prone areas. These evaluations may be accomplished by retaining a licensed architect and engineer to provide a complete analysis and supply recommendations for improving the building's structural soundness.

As part of the risk analysis, the mutual impact of the surrounding buildings and community should be explored and discussed with neighboring owners and local officials. Owners in the development phase should incorporate security measures into design-build construction or renovation projects. Owners also should require architects and engineers to consult with security specialists to develop structures that can withstand an impact and/or progressive collapse of multiple floors caused by external forces such as bombs, explosions, air/ground assaults, fires, or a neighboring building's collapse.

Evaluate Insurance Coverage

Once a building's value and condition is sufficiently documented and secured, owners must determine if their facility is fully insured. Conducting a thorough review of possible insurance alternatives with qualified attorneys and insurance brokers to ensure that coverage and limits are sufficient is a critical step. Different coverage options are available for pre-construction, construction, and post-construction phases of development, and insurance policies may be supplemented with riders specifically tailored to address a building's unique characteristics, a location in a particular disaster-prone area, or a greater potential risk of terrorist activity given a building's size, complexity, value, prominence or celebrity, and location.

A comprehensive economic evaluation can help to determine if an owner should procure insurance that fully funds the replacement or restoration of the structure based upon its present value or reimburses the owner for its initial investment or purchase price of the building and/or land. The best solution is determined by the owner's business model, the current phase of renovation or construction, and where within the current real estate market cycle the project falls.

Placing a monetary value on the potential economic loss including property damage and business interruption damage and obtaining adequate coverage for same is recommended to protect the full value of the owner's investment. Such an analysis should be undertaken in conjunction with the owner's insurance, appraisal, legal, and accounting advisers. An annual review and re-adjustment of insurance coverage is required to reflect changes in the real estate market or an owner's changing business plan. Such a review will help to reveal potential risks and shortcomings in coverage that have developed during the previous 12 months. Adequate insurance coverage is critical to protect a real estate investment as well as its owner from the financial stress that can be directly or indirectly attributable to a disaster.

Another effective planning tool to identify risk factors is brainstorming potential disaster scenarios - especially those outside the box - that may affect an owner's plans, goals, or objectives. A few examples of categories to consider include extreme weather conditions, terrorism, blackouts, collapse of adjacent structures, and transportation or communication disruptions. Since the goal is to plan for the unthinkable, consider scenarios such as no access to emergency systems, personnel, and local, state, or federal disaster management agencies or having telephone land lines and cell phone service disrupted for hours or days. Property owners should involve all levels of personnel in the brainstorming, planning, and execution of the disaster preparedness procedures.

Documenting Procedures

Once potential risks have been identified and addressed, they must be incorporated into a disaster management plan manual that is substantive, flexible, and easy to follow. The manual's purpose is to create an action plan for all levels of personnel in an affected facility if a disastrous activity were to occur. Central to creating and implementing the manual is forming a disaster management team. Once assembled, the team should implement the owner's goals by developing and preparing the manual, including emergency telephone numbers, pertinent contact information, chain of authority, and other details of the developed plan.

A "first response" strategy, or plan to be implemented immediately after a disaster occurs, should be included in the manual. During such time in-house personnel and local, state, and federal officials may be disorganized or temporarily incapable of reacting to the circumstances at hand. Important factors to consider in the first moments following a crisis include remembering the training and guidelines established in the crisis manual; giving deference to the recognized chain of command; conducting an initial assessment as to the structural integrity of the building (even by a lay person) to determine if there has been or continues to be exposure to fire, flooding, earthquakes, collapsing, or other hazards; conducting an initial assessment of the damage and effects of the disaster on the property or project; taking steps to limit the potential for property damage or further property damage; and to the extent feasible, taking photos of the property to create a visual record.

Just as important is the period following the disaster, which may last days, weeks, or months. During this phase of recovery, the survival of the building, commercial investment, or project is at its most vulnerable, and this is when owners truly become aware of how well they have prepared for such a crisis.

Beyond the expediency of the response time, owners must secure certain essential functions to maintain, at a minimum, the status quo. Such functions include plans to continue or re-establish working communications and ventilation, protection against fire and flooding, preventative measures against the development of related conditions such as mold, and the preservation and functionality of electronic and computer mainframes and servers. These functions, among others, should be included in the commercial real estate owner's investment or development project's initial assessment of critical components. (See sidebar, "5 Safety Assessment Tips.") It also is important to identify sources for assistance and supplies available from all three levels of government.

In addition the manual should address the following issues. It should:

  • provide for sufficient financial contingencies in the event the property's lender becomes insolvent as a result of a catastrophic event;
  • provide for storage of emergency material and supplies in an accessible area both on-site and off-site;
  • provide for an annual inspection of the structure, land, and/or project;
  • create a log and routinely record damage to the building, repairs needed and completed, and routine maintenance and inspections of the building, its systems, and land. This consolidates essential information about the property and serves as an effective tool when dealing with lenders and insurers, as well as local, state, and federal agencies; and
  • provide for an evacuation plan, which should include, at a minimum, issues related to fire and life safety, an exit strategy from the building or project, and an updated list of vacant alternative sites that may be used by the owner during the recovery period, or on a permanent basis, if necessary.

Implementing the Plan

After the manual is completed and reviewed, it must be maintained and ready to execute upon a moment's notice. All affected personnel must train sufficiently for effectiveness, application, and implementation. Owners must run repeated practice drills to ensure that the disaster response becomes second nature. Moreover, owners should routinely update the manual as changes to the property's characteristics and key personnel occur. Also, as new threats affecting the owner's goals develop, the manual should be reviewed and assessed to ensure conformance with the owner's most recent business objectives.

Barry B. LePatner, JD

Barry B. LePatner, JD, is founder of Barry B. LePatner & Associates in New York. Contact him at (212) 935-4400 or blepatner@lepatner.com. Preparation ChecklistThe potential economic loss that can result from an unexpected disaster can be devastating to a commercial real estate owner\'s investment or development project. Owners should take steps to ensure that their properties\' critical components are properly documented. Here is a checklist of important points to cover: Update appraisals of the land and structure.Reassess insurance coverage each year. Maintain an off-site copy of all records and core documents such as the deed and other documentation confirming ownership and insurance policies.Maintain a back-up system and/or Web access connections off-site. Keep records detailing the anticipated profit and/or revenue lost or expected to have been gained from a commercial project or building and lost interest and/or decrease in market value based on buildings/rental units of the same complexity, size, and value. 5 Safety Assessment TipsProperty owners and facility managers have a heightened responsibility to keep their buildings\' employees and visitors safe and protect the property from risks that may pose a threat. Safety assessments provide an accurate and detailed understanding of the relationship between building occupancy, property safety systems and features, and emergency procedures specific to a building. Critical steps in property safety assessments include: 1. Identifying risks. It\'s critical to identify potential risks starting with exterior concerns such as parking lot conditions, safety lighting, and location of vegetation. Interior concerns include issues such as hallway and stairway lighting, door-lock systems, elevator maintenance, and fire extinguishers. There are areas within buildings where codes may have been updated or changed that can affect a property\'s overall safety and insurance liability coverage. 2. Evaluating the property. The objective of a property evaluation is to provide a detailed look into the operations of the building\'s owners and managers. An evaluation should recommend procedures and/or building systems that will improve the environment\'s overall safety and occupants\' ability to respond in the event of an emergency. Assessments also constructively analyze a building\'s life-safety and fire-protection status and security. 3. Creating emergency plans. It is critical to develop emergency plans that include disaster training. Preparation and experience play a role in meeting disaster preparedness and emergency contingency plans, which help to ensure company operations continue in the face of natural or man-made disasters. 4. Developing a safety training plan. Emergency preparedness involves life-safety training for building employees, including evacuation planning conducted by external professional experts who specialize in disaster preparedness. 5. Hiring qualified professionals. It is important to hire qualified professionals who are familiar with federal, state, and local fire and safety codes to ensure your company and property are well prepared in the event of a disaster. -- William McGuire is president and chief executive officer of New York-based Global Security Associates, which specializes in facility safety assessments and asset protection. Contact GSA at (877) 425-0999 or info@globalsecurityassociates.com.

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