Hail Damage is Hard to Find.

There are a lot of elements included in due diligence for commercial properties, but the hail storm that hit the valley 2 years ago has added perhaps one of the most costly elements in recent memory.   And before you dismiss this as “old news” let me ask you this question, are you 100% sure you building was not damaged or if it was damaged that it was properly repaired?  Here’s a quick story for you that will shed some light on why I am asking this very leading questions.

A large apartment complex in central phoenix filed a claim shortly after the storm, concerned they might have damage.  The insurance adjuster came out and walked the roof and grounds with the building maintenance manager.  The result was a denial of claim because the adjuster and the maintenance personnel found “no damage”.  The Apartment owners contacted one of the leading hail damage teams in the Valley to do an independent assessment.  The team using their standardized assessment reports found $692,000 in damages which the insurance company agreed to and paid.  So the claim went from denied to $692,000 because the experts found and documented the damage.  The insurance company reviewed the expert reports and agreed with them, paying on the claim.

I am told is not unique and that similar stories happen all the time with big storms like this.  Again, the reason for this story is to wake you up to the reality that there is hail damage out there and if it is not repaired by the deadline (Oct 4, 2012), then you may be looking at significant property devaluation.

Let me explain further.  Take the above example.

Let’s say that you represent the OWNER/SELLER of this apartment complex and they filed a claim, the claim was denied, their maintenance personnel said there was no visible damage, so the owner proceeds without any repairs.  The owner goes to sell the building for $3 million let’s say.  The buyer, who is savvy to hail damage, opens a copy of Google maps with the storm overlay, determines there is a high probability that the building was damaged, hires a hail damage expert who finds $692,000 in damage.   That $3 million asset is now instantly devalued by over 20%!    And since the science behind hail damage is pretty straight forward (which is why the insurance company ended up paying that claim, even after originally denying it) it is highly unlikely you can challenge the report.  Bottom line, your client just lost 20% in building value, just because they took the insurance company’s word for it that there was no damage.

Now let’s say you represent the BUYER.  If you have a buyer who’s looking for some great deals on property, using this overlay map is an incredible way to find properties that may have been ignored, denied or incompletely repaired.  That means you can help your buyer get the best deal, driving down the investment cost for the building, at the expense of the seller.  That also means you are protecting your buying from become a victim of the next buyer who is savvy enough to use the hail damage overlay maps.

Now let’s say you represent the Owner who bought the damaged property taking the sellers word that there was no damage and their attorney or real estate expert did not tell them about the issues associated with hail … namely that even if the insurance company or maintenance man said it was “undamaged” that it could actually hold hundreds of thousands of dollars in damage.   Let’s also say that the hail damage experts report would cost anywhere from Free to $3,000 (or .1%), do you recommend a hail damage assessment followed by a claim against the previous attorney or due diligence expert for failing to address at 20% building devaluation?

Easiest way to deal with this?  Require hail damage assessments from certified hail damage experts for all commercial property transactions in the metro phoenix area.  A hail damage expert (one trained and certified) can provide that expert protection that can ensure your client is protected and making wise investments, and keep you out of the State Bar Complaint/Sanctioning process.  To learn more, contact Denby Law PLLC.

Michael Denby is the founder of Denby Law, PLLC an exclusive environmental and natural resources law firm in Phoenix, AZ focusing on regulatory compliance law for all the major environmental programs, CERLCA, RCRA, CAA, CWA, & TSCA. In his 18 years of environmental representation, Michael has written and presented on numerous environmental topics, sat on 3 gubernatorial appointments, and represented large and small clients before local, state and federal regulators. Learn more about Denby Law, PLLC or to contact the author click here www.denbylaw.com