A tornado barrels through a downtown city block, slicing off the roof and smashing holes in a century-old apartment building. A six-alarm fire leaps from apartment to apartment, gutting much of the building wing where it started and leaving two people dead. A 22-story crane loses stability and smashes down onto a half-finished apartment building, killing seven people and forcing the evacuation of hundreds.

These nightmare scenarios are not imaginary: They've all happened to apartment owners and developers throughout the United States within the last two years.

Owners and managers who have experienced such catastrophes say that even though it's impossible to prevent such unexpected events, owners who have a plan in place when the fire alarm gets triggered or the flood breaches the levee are much more likely to recover quickly from disasters, minimize financial losses, and retain resident good will.

“A disaster presents a real opportunity to shine and win the hearts of your customers,” said R. Lee Harris, president of Cohen-Esrey Real Estate Services, an Overland Park, Kan.-based multifamily owner and operator. “There's not a lot of rocket science here, and empathy for the folks is at the very, very top of the list. Any sort of event like this is very traumatic for the customer, so it's our job first and foremost to minimize the trauma and upset.”

“What's so important here,” added Harris, “is that you have a plan.”

The vast majority of multifamily professionals practice what Harris preaches. An industry survey from the National Multi Housing Council (NMHC) found that 73 percent of multifamily companies have a disaster or emergency preparedness plan in place, according to Jeanne McGlynn- Delgado, the NMHC's vice president of risk management and property operations policy.

Having a solid insurance plan helps in recovery efforts, and the NMHC's annual Apartment Cost of Risk Survey shows that now's a good time for those in the multifamily industry to beef up their insurance coverage, as the insurance industry's surplus capital grew 14.1 percent in 2006, making for a soft pricing market that is likely to continue through 2008 and into 2009.

Savvy operators have already taken advantage of the market softness to renegotiate prices. AvalonBay Communities, for instance, has asked its insurance carriers to rebid their policies twice in the last three years and has achieved a 25 percent savings as a result, according to Chief Financial Officer Tom Sargeant.

How a single insurer, low deductibles help

Dominium Development & Acquisition has also realized some savings on its insurance premiums over the past couple of years and has taken an even more aggressive approach to risk management by shifting some of the financial risk to itself, accepting higher deductibles, and even self-insuring to some extent, explained Chief Financial Officer Tom McAllister.

From an overall risk management perspective, such steps make sense, but when it comes to the hands-on work required to deal with the aftermath of a major disaster, good relationships are key, say multifamily operators—and that includes relationships with insurance companies.

Aderhold Properties' relationship with its insurer, Fireman's Fund, facilitated a speedy recovery effort after Aderhold's Fulton Cotton Mill Lofts in Atlanta were hit by a tornado in March.

“This particular carrier made sure we were advanced extraordinary funds so we didn't have to use any of our own money” to renovate and rebuild, said Tom Aderhold, president of Atlanta-based Aderhold Properties. “Having one carrier for three policies on our site is the best thing we could have possibly done.”

Financial recovery was also aided by the fact that the company's deductibles were low—$2,500 per incident per policy. And because of a policy put in place 18 months earlier, about 60 percent of the residents had renters' insurance, vastly reducing post-disaster claims and ill will on the part of tenants. Those insurance carriers actually showed up in the wake of the tornado, set up a table, and were able to write checks to renters on the spot, said Aderhold.

“It's amazing how when the resident gets a new couch after their old one was ruined by water, they're not so unhappy anymore,” said Dirk Wakeham, president and CEO of LeasingDesk, the renters' insurance broker that Aderhold Properties used. Renters' insurance “really is a good neighbor policy that owners have,” he added. “Residents appreciate knowing that they can be protected from living next to people they didn't choose to live next door to.”

Building good will

Another key component in building good will with tenants, according to multifamily operators, is simply to show up right after the disaster hits. Walk the property, make sure first responders have all the information they need, check in with residents to ensure they're all accounted for, and try to take care of any concerns that they may have.

And keep showing up. Aderhold and his team had meetings every morning for 10 days with all personnel—the architect, engineer, and contractor, plus city inspectors, firefighters, police officers—to plan the cleanup and recovery. The persistence and thoroughness paid off: The company was able to get half its residents back into their homes within seven days.

Dan Wayne, a principal with Argentx Management Services, an operator of 1,800 units in California, Nevada, and Colorado, rushed to one of his properties in Long Beach, Calif., as soon as he found out it was on fire. After the blaze was extinguished, he offered to help tenants carry out their belongings from cordoned-off apartments. “What made a difference is I was out there at the property every single day,” he said. “I talked to my tenants, I held their hands; I wanted them to know we cared.”

Having a regular presence on-site can also help keep looters and vandals at bay. Quick thinking by on-site staff doesn't hurt, either.

Mobile, Ala.-based The Mitchell Co. operates properties up and down the Gulf Coast that were affected by Hurricane Katrina in 2005, and its front-line workers organized themselves to protect the apartment communities after the storm charged through. “Our maintenance men blocked the driveways and organized themselves into armed patrols,” said Chuck Stephan, vice president and partner.

Keeping contractors on standby

Lining up contractors ahead of time can significantly speed the disaster recovery process, according to experts. The Mitchell Co. is itself a general contractor as well as a multifamily manager and owner, but it still needed help in the wake of Hurricane Katrina.

One of the first things Stephan did was to call everyone he knew in Texas and have them send crews of workers over. “They were experienced roofers and sheetrock hangers and so on,” he said— just the people needed to repair damaged buildings and the sort of workers who were in acutely short supply in the aftermath of the storm.

Then Stephan gathered as many materials as he could, since he knew that suppliers of homerepair items would quickly sell out of key equipment. “The day after the hurricane, we bought every shingle in Gulfport and Biloxi,” he said, and then he put anyone who could swing a hammer to work re-roofing buildings.

Multifamily operators may need to clear out debris before beginning repairs, and that's a big expense they should be prepared for, said Stephan. “The cost of hauling off these wrecked buildings is enormous,” he said. Plus, managers should make sure the cost of temporary repairs, such as covering a blown-off roof with protective sheeting until a new roof can be hammered in place, is included in their policies, he added.

Other items owners and managers should check for in their insurance policies: Is the loss of rents covered? For how long? Are losses caused by the actions of a municipal government part of the coverage? How much windstorm coverage do you have? What are your deductibles?

“Always read your exclusions,” counseled Stephan. “There's an old saying in the insurance business: The fine print taketh away what the bold type giveth.”

On top of scrutinizing their insurance policies, multifamily executives should also make sure they have a coherent communications policy in the aftermath of a disaster. Appoint one person to deal with the media, said Harris of Cohen-Esrey. If you have employees giving out competing versions of the same story, “it's a disaster on top of a disaster,” he said.

The main things you want to communicate: that you're on top of the situation, your recovery plan is proceeding smoothly, and that residents, who are your biggest concern, are being taken care of. “This can be a big win for you and for the rest of the residents who observe the way you handle it,” said Harris.

There may have been no way to prevent the catastrophe that befell your property, but if you help your residents recover from the nightmare in a way they can feel good about, you'll have bought yourself unbeatable brand loyalty.