Perspectives and Recommendations from the Austin Apartment Association

Comments from the Austin Apartment Association to the City of Austin Winter Storm Task Force

Winter Storm Task Force Meeting – June 23, 2021

Summary

The Austin Apartment Association (AAA) was founded in 1964 and is composed of more than 1,000 diverse businesses that own, manage and service more than 275,000 rental homes in the Greater Austin area and 10 surrounding counties. The City Council created the Winter Storm Review Task Force under section 2-1-2(E) of the City Code for the purpose of holding open public listening sessions during which individuals and organizational representatives can share information, experiences, and recommendations related to the winter storm and resulting crises. The AAA appreciates the task force creation and the opportunity to submit comments.

Multifamily properties suffered widespread damage as a result of the extreme winter weather that peaked on Monday, February 15, 2021. The lack of reliable heat due to the power outages issued by the state’s energy grid operators created a problem many properties could not overcome. It is obvious that had the electric grid operated without fail, and the ordered blackouts not occurred, the freeze damage would have been far less. Nearly 420,000 insurance winter storm related claims were filed in Texas.

Apartment industry professions began working before and after the freeze to prevent and stop water damage, and there are countless stories of maintenance technicians and property managers going above and beyond to improve onsite conditions. As of June, the number of code case associated with winter storm damage has dwindled to just 123 and only one apartment property is facing possible fines and penalties.

Contractor availability, materials and parts, insurance adjusting/estimating and labor and manpower logistics of onsite teams were all reported to be the primary factors contributing to the timeline for repairs. Also contributing to the delays are permitting procedures and trying to coordinate inspection requirements with unit residents including preconstruction inspection meetings and the required “screw pattern” inspection of the drywall installation before final prep and paint.

The AAA membership encourages state and local policy leaders to carefully consider our recommendations including improved power outage management policies and the use of video inspections for damage repairs. The AAA stands ready to assist in the effort to make the state and local policy changes necessary to keep the multifamily housing industry from enduring a similar event, and the resulting damage, in the future.

COMMENTS

Disaster events always reveal much about best-laid plans and the ability to quickly move toward a collective recovery. When it comes to the recent winter storm disaster the collective recovery is ongoing and the impacts linger. The Austin Apartment Association herein provides our perspective on this catastrophic event and present recommendations that will help multifamily housing residents and operators to better endure similar winter conditions or other catastrophic damage events in the future.

On February 15, at the peak of the winter storm unofficially named “Uri”, the average temperature across Texas was just 12° and most Texas cities set new records for continuous hours below freezing temperature. The impacts of this extreme winter weather on landscape, physical structures and buildings are jarring. Insurance modelers and market research organizations claim the storm damage will exceed $20 billion. By comparison, the widespread losses associated with Hurricane Harvey caused nearly $19 billion in insured losses in Texas.

The Texas Department of Insurance cites 418,362 reported claims from homeowner, commercial property, and automobile insurance policyholders. There is little doubt this avalanche of claims will spur insurance rate hikes on top of what was already an eye-popping jump in commercial and multifamily insurance rates in recent years.

A recent survey¹ of housing providers representing 2.6 million units (including 1.3 million affordable units) indicates that general umbrella/excess liability insurance premiums increased for 95% of policies including 26% with rate increases over 30% in 2020 and 2021. In the commercial property sector, insurance premiums increased for 94% of policies including 14% with rate increases over 30% during the same period.

That same survey found that the most common apartment management actions used to mitigate higher insurance premiums includes increasing insurance deductibles, decreasing operating expenses, and increasing rent. Nationally, 16 cents of every $1 in rent pays for operating expenses such as property and liability insurance, utilities, and ongoing maintenance. When this figure is recalculated, it is likely that any increase in the national average for this portion of operation costs may very well be attributed to Texas rental housing providers alone.

Austin Apartment Association member Ben George, CLCS with Higginbotham Insurance says “We fully anticipate a direct impact on the insurance market’s profitability moving forward. As a result of this unexpected event, it is reasonable to predict Apartment/Habitational risks throughout Texas will face further scrutiny from insurance underwriters. Rate increases, higher deductibles, and tighter terms and conditions are likely as the winter storm will keep us in a “hard” insurance market. We were hopeful that in 2021 there would be light at the end of the tunnel and that rates would level off, but with this significant loss, event repercussions will be felt in the insurance marketplace. “

As the cold and ice-covered landscape drooped, the winter storm’s wrath began to creep behind the walls and under the roof to freeze water pipe systems. Water systems running in attic spaces were especially vulnerable, and the lack of reliable heat due to the power outages issued by the state’s energy grid operators created a problem many properties could not overcome.

The brutal effects of the long power outages ordered by the Electric Reliability Council of Texas (ERCOT) targeted water pipes and fire sprinkler systems. The bursting of frozen water pipes created lasting images of water cascading down the side of buildings or dripping from ceilings. Residents and onsite staff at apartment communities were doing everything in their power to minimize damage of units and belongings from the water damage. It is obvious that had the electric grid operated without fail, and the ordered blackouts not occurred, the freeze damage would have been far less.

As the insurance impacts are tallied and electric grid actions are fully analyzed, it is important to recognize disaster preparation plans that did go right, and the fast corrective actions taken to reduce damage and meet the needs of apartment and rental housing residents. In a post-storm survey of Austin Apartment Association members, they reported such taking such actions as:

• “Prior to storm - constant communication with residents on freeze preparation (drip lines, covered exposed lines, de-icing high traffic walkway areas), onsite maintenance or on-call maintenance. During storm, drained fire system lines once pipe breaks commenced, port-o-potty when water was turned off by city, warming buses for those that use aquatherm units to heat homes, water for drinking, cooking and for hygiene.”
• “We covered all weatherized all exterior water spigots. We purchased de-ice to install and avoid injuries. We winterized all vacant apartment homes in advance. We educated residents repeatedly on the importance of running faucets, opening cabinets, and keeping the heat on low.”
• “Implemented company ‘Winter storm Preparedness’ practices.”

AAA members also reported that the first actions taken to help residents without water or with unit damage was to temporarily place them in vacant units on-site or at a sister property.

We know that Austin Energy, Austin Water, and Austin Code as well as many other departments and government entities deftly worked and ably responded to fast-changing situations and demands. The AAA appreciates city and county leadership for engaging with us to coordinate information and water distribution actions.

The residential property management industry rose to the occasion to help address critical situations and quickly begin the recovery process. We are especially thankful and proud of the countless apartment professionals separated from their own families in order to be at the property to stop those cascades of water and treat ice-covered stairways and parking lots. Some onsite team members slept in their office or the community center while working around the clock to start property preparedness plans, mitigate damage, secure resources for residents, implement fire watch procedures, and coordinate repair efforts. The AAA also applauds the efforts taken by members who played a role in assisting the city in their efforts to distribute water, and special recognition is given to the AAA’s product and service provider members who generously contributed the funding and distribution resources to deliver more than 35,000 bottles of water to apartment communities stranded without water service.

The city has initiated reports and a task force examination of the winter freeze response and recovery. The reports on this extreme storm may reveal extreme situations, but the AAA is confident that the ongoing recovery process is being conducted as quickly as possible. It is important to note that of the over 200,000 apartment homes in the City, Austin Code initially reported just over 700 multifamily property code violation cases initiated by residents through the 3-1-1 system. That figure was quickly corrected and reduced by 78% to 123 cases in the subsequent report. To date, only two cases have appeared before the city’s Building Standards Commission with only one of those resulting in possible fines and penalties despite valid testimony from the property regarding the lengthy insurance claim process and contractor availability delays.

The winter storm underscores that the demands placed on the apartment industry in times of crisis are enormous. Every apartment resident, owner, and property manager wants damage repaired and everyday lives quickly restored. However, the widespread damage caused by the freeze consequently led to thousands of properties making similar damage repairs and competing for the same resources and assistance. Contractor availability, materials and parts, insurance adjusting/estimating and labor and manpower of onsite teams were all reported to be the primary factors contributing to the timeline for repairs. Permitting delays, coordinating preconstruction inspection meetings and other required inspections with unit residents, including a required “screw pattern” inspection of the drywall installation before final prep and paint, for nearly all wall repairs have also contributed to the delays.

The AAA continues to promulgate winter storm-related information and resources to its members and their residents. The AAA has created a Disaster Response and Preparedness Task Force. This permanent task force is comprised of a wide range of industry professionals who will help create plans and procedures to guide the AAA actions as well as identify best practices and create educational materials and resources for apartment owners and managers of all sizes.

As we look toward the future, the AAA agrees with power grid recommendations expressed by many others when calling for mandatory natural gas production pipelines weatherization with minimum standards with meaningful enforcement as well as modifications to electric transmission and distribution systems as well as improve outage management practices so that power outages are rotated among all customers. We also agree that the benefits and costs of adding additional high voltage transmission between ERCOT and its neighboring interconnections should be fully examined.

Locally, the AAA recommends that:

• Austin Energy establish new policies that allow for, and encourage, resiliency through onsite power generation and the creation of micro-grid power distribution systems.
• The city explore the prospect of creating a fire sprinkler pipe insulation rebate program.
• Clearly identify representatives on the City and County disaster response team responsible for coordinated resource allocation and communication with multifamily properties. Ensure key local trade associations are engaged with their response team representative for information sharing and resource deployment. Include key local trade associations in disaster training exercises.
• Include property management representation on disaster- and property related boards, commissions, and task forces.
• Following widespread storm damage, offer City permit and fee waivers for at least ninety days following storm events.
• Fully explore the use of video inspection procedures associated with small property repairs, and especially common wall repairs and the required insulation and screw pattern inspections, to help reduce construction delays and resident inconvenience.

These recommendation are submitted in ongoing effort to improve disaster response, coordinate actions, and expedite disaster recovery, and the AAA endeavors to be a resource to help assist in the their implementation. The final tally of insurance claims, common damage experienced and other related facts that could help guide policy actions have yet to be revealed. It is our hope that the Task Force and city policy leaders will continue to collect and analyze information and make the changes needed to lesson the impact of severe winter weather on multifamily properties and improve disaster response procedures.

¹ Increased Insurance Costs for Housing Providers Nam D. Pham, Ph.D. and Mary Donovan, ndp | analytics, May 2021,

Respectfully submitted,

Austin Apartment Association

512-323-0990

8620 Burnet Road, Suite #475

Austin, Texas 87857