What the building is costing you

Ask an owner what their building costs to run and most can tell you the mortgage payment. Fewer can tell you the operating expense ratio. Almost nobody has recalculated what their insurance renewal did to the value of the building.

That last one is where the damage has been.

Every dollar of expense costs you twice

Before the specifics, the two multipliers that make expenses matter more than they look.

Value. At a 5.5% cap rate, one dollar of permanent annual expense reduces the building's worth by roughly eighteen dollars. A $15,000 insurance increase is a $273,000 reduction in value.

Borrowing capacity. At 1.25x debt service coverage, 6.35%, and thirty-year amortization, one dollar of net operating income supports about $10.70 of loan. That same $15,000 expense increase destroys about $160,000 of refinance proceeds.

So a bad insurance renewal is not a $15,000 problem. It is a quarter-million-dollar problem that arrives as a $15,000 invoice. This is why we push hard on the expense side of a rent roll, and why "shopping the insurance" is not a small errand.

Insurance: what actually happened

The national picture first, because it is more moderate than Southern California owners assume. Federal Reserve researchers found average multifamily property insurance rose from $39 per unit per month in 2019 to $68 in 2024 in real terms — over 75%. They also found something owners feel but rarely quantify: a dollar of insurance increase reduces owner net income by about 72 cents. Only about 28% reaches tenants, and in rent-stabilized buildings it is less than that, because you cannot pass it through at all.

Notably, that national research did not identify California as a worst-hit state. Florida and the Gulf coast led. California's problem is different in kind: it is about availability and wildfire concentration, not broad premium inflation.

What that looks like on the ground:

• Per-unit costs in high-risk California areas have been quoted at $1,800 to $2,400 per unit per year, against $300 to $500 before 2019.
• State Farm non-renewed roughly 42,000 commercial apartment policies in California in March 2024. That single action is the origin of much of the current placement difficulty.
• The surplus lines and excess market grew from about 6% of the California market in 2014 to roughly 20% in 2025.
• Wildfire-exposed buildings at the urban interface have been quoted at $10,000 to $25,000 per $1 million of insured value, versus $1,000 to $5,000 inland.

But the market is softening, and this is the useful part. Carriers are offering reductions of 10% to 30% for quality construction and hardening. Some insurers approved for 7% California increases have instead filed decreases of 9%, with parts of Southern California seeing roughly 15% reductions. One brokerage reported a client with actual Palisades fire losses achieving a 25% portfolio reduction post-fire, on construction quality.

If you have not re-marketed your coverage since 2024, you are very likely overpaying. That is a concrete, checkable thing to do this month.

The FAIR Plan, and the trap inside it

The California FAIR Plan is the insurer of last resort. After the Eaton and Palisades fires it paid roughly $3.5 billion across about 5,400 claims, assessed member insurers $1 billion, and has since added a $750 million catastrophe bond. As of December 2025 it held 668,609 policies, up 146% since September 2022, with $724 billion of exposure.

For apartment owners, the important change: FAIR Plan commercial limits more than doubled to $20 million per structure and $100 million per location, and "habitational buildings" of five or more units are explicitly eligible. That limit now covers essentially every 4-to-20-unit building in the county.

Here is the trap. The FAIR Plan covers basic perils only — fire, lightning, internal explosion, smoke. It excludes liability, water damage, and theft. No lender will accept it alone. You need a separate Difference in Conditions policy wrapped around it to satisfy an insurance review.

Owners who assume FAIR Plan coverage will close a loan discover otherwise late in escrow, which is an expensive time to find out.

One protection worth knowing: SB 547, signed October 2025, extended California's one-year post-disaster cancellation and non-renewal moratorium from residential policies to commercial ones, including apartment buildings. After a declared wildfire emergency, your carrier cannot drop you for a year.

Property tax, and the thing that resets it

California property tax runs roughly 1.1% to 1.25% of assessed value in most of LA County once voter-approved bonds and direct assessments are added.

Under Proposition 13, assessed value is your purchase price, growing at no more than 2% a year. An owner who bought in 1992 may be paying tax on an assessed value a fraction of today's market value. That gap is often the single most valuable thing about a long-held building — and it is destroyed by a change in ownership.

What counts as a change in ownership is not obvious, especially for property held in an LLC or partnership, and it is the subject of a separate note on partner buyouts. If you are contemplating any transfer of interests, read that before you sign anything.

The fees that are easy to miss

Annual per-unit fees in the City of Los Angeles, billed in January and delinquent after the last day of February:

Half of the RSO fee may be passed through to tenants with 30 days' notice, and since January 2022 one-twelfth of half the annual SCEP fee may be collected monthly. Verify the current pass-through figures with LAHD — the published amounts have not obviously been updated in some years.

Where owners are usually leaking money

In the buildings we look at, the recurring ones:

• Insurance not re-marketed since the 2023-24 spike, in a market that has since softened.
• Master-metered utilities in a building that could be submetered. The utility surcharge was eliminated in February 2026, so there is no longer any RSO mechanism to recover it through rent. The only fix is capital.
• Water. Irrigation on a broken timer, running toilets nobody reports because the tenant does not pay for water.
• Management fees on a building small enough to self-manage, or self-management on a building large enough that it is costing the owner more in vacancy and turnover time than a manager would.
• Property tax that should be appealed. If you bought at the top and values in your submarket have since fallen — LA rent growth was flat at 0% in the first quarter of 2026, and Santa Monica rents were down 7.5% year over year — a Proposition 8 decline-in-value appeal may be available.

What we do

We rebuild the operating statement from source documents rather than working from a broker's pro forma, because pro formas are optimistic by profession. Then we compare each line against what buildings of the same size and vintage actually spend.

The result is usually a short list of two or three items where real money is sitting. Insurance is on that list more often than anything else right now.

Insurance markets and figures move quickly. This reflects our reading as of September 2026.

Sources

• Federal Reserve, Rising Property Insurance Costs and Pass-Through to Rents for Apartment Buildings, September 2025
• California FAIR Plan, one year after the Eaton and Palisades wildfires, January 2026
• California Assembly Insurance Committee, FAIR Plan oversight background, January 2026
• California Department of Insurance, 2025 wildfire insurance legislation
• LA Housing Department, annual RSO / JCO / SCEP bill