BOYNTON BEACH, FL-With rising insurance rates driving up operating costs of multifamily properties, some owners are having difficulty operating properties. This has led to a rise in the prevalence of foreclosures and distressed properties, and an increased interest in property management as a way to address these problems, said Dennis Lee, principal and executive vice president of the locally based Apogee Cos.

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

The active hurricane seasons of 2004 and 2005 have caused, in some cases, property insurance rates to triple. This has led to rising operating costs, which owners cannot fully offset with increased rental rates. This is particularly true with affordable housing, with rents that are capped at levels to maintain affordability. "It becomes a vicious cycle," Lee says. "The physical asset starts to deteriorate and you cannot get the rental rates increases needed to begin to turn the property around."

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

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

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

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