Civil Unrest & CRE: Protecting Your Assets

The year 2020 brought into sharp focus the disruptive power of civil unrest, impacting businesses across various sectors, including commercial real estate (CRE). While often arising from legitimate social and political issues, events like protests and riots can disrupt business operations, damage property, and threaten the safety of tenants and employees. This report provides an in-depth look at the impact of civil unrest on CRE, exploring historical examples, preparedness strategies, insurance options, government assistance programs, and the role of technology in mitigating risks. It also examines the types of events that can escalate into civil unrest, such as protests related to the Israel-Hamas war, immigration, abortion rights, and climate change¹.

Impact of Civil Unrest on CRE

Civil unrest can have a profound and multifaceted impact on commercial real estate:

• Property Damage: This is a primary concern, ranging from broken windows and vandalism to more severe damage like arson and structural harm. Construction sites are particularly vulnerable due to the presence of attractive targets such as stored materials and equipment². Moreover, during periods of unrest, emergency resources can be stretched thin, potentially delaying response times and exacerbating property damage³.
• Business Interruption: Civil unrest can disrupt business operations, leading to closures, reduced customer traffic, and ultimately, impacting revenue streams⁴. This disruption can stem from physical damage to the property, restricted access due to safety concerns, or a general decline in economic activity in the affected area⁵.
• Tenant and Employee Safety: Ensuring the safety of tenants and employees is paramount. Civil unrest can create a hostile and unpredictable environment, potentially leading to injuries or even fatalities⁶.
• Economic Volatility: The uncertainty associated with civil unrest can have long-term economic consequences. Investors may become hesitant to invest in areas perceived as high-risk, leading to decreased property values, a slowdown in development projects, and a potential downward adjustment in overall wealth⁷.
• Insurance Costs: As civil unrest becomes more frequent, insurance premiums for CRE properties in affected areas are likely to rise. Furthermore, some insurers may exclude or limit coverage for specific damages related to civil unrest, particularly for vulnerable elements like glass windows⁴.

It's crucial to recognize that these impacts are interconnected and can create a cascading effect. For instance, property damage can lead to business interruption, which in turn can affect tenant retention and ultimately impact property value. This interconnectedness underscores the need for a comprehensive approach to risk management in the face of civil unrest.

Preparing for and Responding to Civil Unrest

CRE owners and managers can take proactive steps to prepare for and respond to civil unrest, minimizing potential damage and disruption:

• Stay Informed: Closely monitor local news and social media for any indicators of potential unrest⁹. Establish relationships with local law enforcement agencies and community leaders to gather intelligence and receive timely updates on developing situations¹⁰.
• Coordinate with Agencies: Effective preparation requires coordination with public safety agencies, including emergency management, law enforcement, and fire services, to ensure a collaborative response to potential unrest¹¹.
• Develop a Plan: Create a comprehensive plan that outlines procedures for protecting property, ensuring tenant and employee safety, and communicating with stakeholders. This plan should include:

• Property Protection: Secure the property by taking measures such as boarding up windows, installing security cameras, and increasing security personnel presence¹.
• Emergency Communication: Establish clear communication channels with tenants and employees to provide updates and instructions during unrest. Utilize mass notification systems to disseminate information quickly and efficiently¹².
• Evacuation Procedures: Develop and practice evacuation procedures to ensure the safe and orderly exit of tenants and employees from the property in case of an emergency.
• Business Continuity: Implement measures to minimize business disruption, such as having backup systems in place and identifying alternative work locations if the primary premises become unusable.

• Resources and Guides: Utilize available resources and guides to enhance preparedness efforts. For example, the National Highway Traffic Safety Administration's Office of Emergency Medical Services (EMS) provides guidance on personal safety during civil unrest, which can be adapted for tenant and employee safety. This includes staying informed about potential unrest, planning safe exit routes, and avoiding confrontation¹³.
• Train Employees: Conduct training sessions for employees on emergency procedures, including communication protocols, evacuation routes, and how to respond to various scenarios that may arise during civil unrest¹⁴.
• Community Engagement: Engage with the local community and participate in initiatives aimed at promoting peace and addressing the root causes of unrest. This can help foster a more stable and resilient environment for businesses and the community as a whole¹⁵.

Case Studies of Civil Unrest and CRE

Examining past events provides valuable insights into the potential impact of civil unrest on CRE:

• 2020 Protests in the United States: Following the death of George Floyd, widespread protests and riots occurred across the United States. Many businesses, particularly in major cities, suffered property damage and business interruption¹⁶. Insurance claims related to the unrest exceeded $2 billion, highlighting the significant financial consequences for the CRE industry¹⁷.
• 2019 Protests in Chile: Protests initially triggered by a subway fare increase in Santiago, Chile, escalated into widespread unrest, resulting in significant property damage, including the destruction of numerous subway stations¹⁸. The total economic impact of the protests was estimated at $4 billion, demonstrating the potential for substantial economic losses due to civil unrest¹⁸.
• 2021 Riots in South Africa: Following the arrest of former President Jacob Zuma, riots and looting broke out in South Africa, causing widespread damage to businesses and infrastructure. Insurance claims related to the riots exceeded $1.9 billion, underscoring the vulnerability of CRE to such events¹⁷.

These case studies emphasize the importance of preparedness and the potential for significant economic and physical damage to CRE during periods of civil unrest.

Insurance Options for CRE

CRE owners should carefully consider their insurance options to mitigate the financial risks associated with civil unrest:

• Property Insurance: This covers physical damage to the building and its contents caused by events like fire, vandalism, and theft, which are common during civil unrest¹⁹.
• Business Interruption Insurance: This compensates for lost income and ongoing expenses if the business is forced to close due to physical damage or restricted access caused by civil unrest²⁰.
• Extra Expense Insurance: This covers the additional costs of operating the business from a temporary location if the primary premises are unusable due to civil unrest²¹.
• Civil Authority Coverage: This covers income loss due to government-mandated closures or restricted access to the property during civil unrest²².
• Riot and Civil Commotion Endorsements: These endorsements can be added to existing policies to ensure comprehensive coverage for all civil unrest-related damages²⁰.

It's crucial for CRE owners to review their policies carefully, understand the specific terms and exclusions, and consider adding endorsements to address potential gaps in coverage²¹. Furthermore, it's important to be aware that obtaining sufficient coverage for civil unrest can be challenging, especially in high-risk areas. Some insurers are now limiting or even excluding this type of coverage, making it essential for CRE owners to be proactive in securing adequate protection⁸.

Government Assistance Programs

Government assistance programs may be available to CRE businesses impacted by civil unrest:

CRE owners should research and contact relevant agencies to determine their eligibility for these programs.

Technology and Civil Unrest Mitigation

Technology can be a valuable tool in mitigating the impact of civil unrest on CRE:

• Risk Intelligence and Threat Monitoring: AI-powered platforms can provide real-time alerts and insights into potential civil unrest risks, helping businesses prepare and respond proactively²³.
• Mass Notification Systems: These systems enable rapid communication with tenants and employees, providing timely updates and instructions during unrest¹².
• Security Systems: Advanced security systems, including surveillance cameras, access control systems, and alarm systems, can help protect property and deter vandalism.
• Virtual Reality and 3D Modeling: These technologies can be used to showcase properties remotely, minimizing the need for physical visits during times of unrest²⁴.

By leveraging these technologies, CRE owners can enhance their situational awareness, improve communication, and strengthen security measures to mitigate the risks associated with civil unrest.

Conclusion

Civil unrest presents a significant challenge to business continuity in the CRE industry. However, by understanding the potential impacts, learning from past events, and implementing proactive strategies, CRE owners and managers can effectively protect their properties, tenants, and employees. This includes developing comprehensive preparedness plans, securing appropriate insurance coverage, exploring government assistance programs, and leveraging technology to mitigate risks.

The key takeaway is that a proactive and informed approach is essential for navigating the challenges of civil unrest and ensuring the resilience and long-term success of CRE businesses. CRE professionals must prioritize business continuity planning, engage with stakeholders to build community resilience, and stay informed about the evolving landscape of civil unrest risks.

Works cited

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