(To read more on the multifamily market, click here.)

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BOYNTON BEACH, FL-With rising insurance rates driving upoperating costs of multifamily properties, some owners are havingdifficulty operating properties. This has led to a rise in theprevalence of foreclosures and distressed properties, and anincreased interest in property management as a way to address theseproblems, said Dennis Lee, principal and executive vice presidentof the locally based Apogee Cos.

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"Over the past year we've done a lot of work with propertyowners with malfunctioning assets," Lee tells GlobeSt.com. "Homeprices have reached an all-time high, which has put pressure on themultifamily market to fill the gap."

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The active hurricane seasons of 2004 and 2005 have caused, insome cases, property insurance rates to triple. This has led torising operating costs, which owners cannot fully offset withincreased rental rates. This is particularly true with affordablehousing, with rents that are capped at levels to maintainaffordability. "It becomes a vicious cycle," Lee says. "Thephysical asset starts to deteriorate and you cannot get the rentalrates increases needed to begin to turn the property around."

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When this begins to happen, property may begin to accept lessthan desirable tenants and the reputation of a property "can gosouth quickly." It may also result in a property being forced toconvert from affordable to market-rate housing.

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Lee gave as an example a property owner in Western Florida thatApogee is currently assisting through bankruptcy of a 360-unitaffordable housing property. The insurance rates more than tripled,which caused the property to go into foreclosure. "When theproperty is sold, it will no longer be affordable housing," Leesays. "The new owners will have to raise rents $200 to $400 a monthto operate the property."

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To address these issues, there are steps that owners can take.When Apogee intervenes, the first steps it often takes are cleaningup the tenant profile by issuing rent collection letters andevicting tenants that do not pay. "In 60 to 90 days, you can turnthe corner on a property," he says.

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Other measures include hiring an engineer to assess property "togive it a clean bill of health." Owners can also install modernalarm systems and other loss prevention methods, which willinsurance companies will compensate in the way of discounts oninsurance rates. "On the affordable housing side, there may be sometypes of subsidies available," Lee says.

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