(Writer’s Note: This is the third of a three-part series about how Georgia’s lack of tort reform has affected the real estate industry. Part One is available here, while Part Two is available here.)
Three people who hold high-ranking positions in corporate real estate have said that Georgia’s lack of tort reform has made doing business in the state a nightmare, and now they’re worried about what comes next.
And what happens depends upon state legislators, who can either fix the problems that these businessmen and women have or offer no fix at all.
Many of the real estate officials’ problems are concentrated in and around Atlanta, which suffers from high crime. Unless state legislators enact meaningful tort reform, and soon, they said Georgia’s affordable housing problems could soon worsen.
“In Georgia, it’s a field day for trial lawyers, and things have finally come full circle where our insurance carriers have left,” said Laurel Hart, who has worked to provide affordable housing for 25 years.
In Georgia, Hart and her peers can be held civilly liable if a criminal harms another person in their place of business and a court rules that they didn’t implement adequate measures for security. They’ve said, however, that taking reasonable security precautions still isn’t enough to shield them from a costly lawsuit.
As these businessmen and women went on to say, jurors in Georgia are far too eager to penalize corporations in civil court. Insurance companies, who know about these jurors and their reputations, pressure property owners to settle before jurors can pass down a devastating nuclear verdict.
“[Because of this,] there are pockets all over this metro [Atlanta] area where you cannot get [insurance] coverage,” said Kevin Carr, who works for a nationwide third-party management company.
“The lawyers must relent. Their well [that they draw from] has run dry.”
GEORGIA’S BUSINESS-FRIENDLY REPUTATION?
Avi Wolf, the president of a Dunwoody-based property-management company, said he’s wanted to work in real estate since he was a child.
“I wanted to build buildings. I wanted to do massive developments. I always knew that somehow, one way or another, I would end up in the real estate world,” Wolf said.
“The year 2011 presented that opportunity when things were actually somewhat affordable to enter. The conditions felt right. The returns were there. You could satisfy your high-interest loans and your investors. You could also have something for yourself.”
Hart, meanwhile, said her company purposefully enters blighted and high-crime areas to try to revitalize them.
In exchange, Georgia officials have not seemed to offer much in the way of gratitude. The state has a business-friendly reputation, but word of mouth, at least in the insurance industry, says otherwise.
Carr’s company has properties in all five of the states that border Georgia. The company also has properties in Louisiana.
“We have the worst situation in Georgia,” Carr said.
“Everyone in our insurance brokerage environment and our industry knows it well. People come to me and ask ‘Oh, you’ve got assets in Georgia? Ugh.’ They know it will be very difficult to place it if you are in an urban area, especially in a zip code that has had incidents.”
The marketplace, Car said, “avoids zip codes” where getting assault and battery coverage proves difficult. And that creates additional problems for property owners who went to those zip codes to do business… but now want out.
“You cannot even sell your asset because you are selling an asset that everyone in the marketplace knows you cannot even insure,” Carr said.
“That means the investment opportunity, the equity holders for a purchaser, are not protected. That creates a full circle environment where all of a sudden investments are tumbling in value and, ultimately, that is where our industry [in Georgia] is.”
Carr said his master policy insurance carrier “does not want any more submissions from Georgia.”
“It doesn’t even matter if you are in some rural county that has never had an incident,” Carr said.
“They don’t want Georgia, period.”
Wolf said that in Georgia his industry, in only a matter of years, “went from 30 insurance companies a couple of years ago, to less than a handful.”
AN IMBALANCE IN SUPPLY AND DEMAND
As state legislators examine tort reform, Wolf said that too many of them look at the problems that he and his peers are having and jump to the wrong conclusions.
“They keep trying to make this an insurance industry issue [and how it supposedly does wrong by its customers] when that’s not the case,” Wolf said.
“We know that supply and demand is every single part of business. So if you have a short supply of a provider then, of course, your premiums are going to go up. But if you can get many more providers back to the table then you now have competition. Of course rates are going to go down.”
Business owners, of course, must pass down the higher costs of doing business, including higher insurance costs, down to their customers.
And, as Carr went on to say, under these conditions, tenants need to worry about rising rents.
“The number one way to make rents rise is to have there be an imbalance of demand and supply. You are never going to get more supply as a general rule in a jurisdiction that has these kinds of insurance complications,” Carr said.
“When business becomes the target for every victim in our society, many things will crumble. You cannot place blame on what is just short of innocent bystanding companies just because they are a company,” Carr said.
“Ultimately, everything will come full circle. In our situation, the general blue-collar worker is not going to benefit from the way that things are today, and that’s because there will not be investment in multi-family [housing] in their jurisdiction. Property owners in Georgia know that they are a target, and they want nothing to do with it.”
Affordable housing is a problem throughout Georgia. Certain local governments want to impose impact fees and costly regulations on the construction of new homes. They also want to ban tiny homes and even weaponize rezoning.
As it relates to tort reform, Carr said that the more people know about what’s really happening in Georgia’s real estate industries the better.
“If the general public knew how much we are the pincushion for common violence that happens in our society, and [the liability] is not on the perpetrator, it is on whoever has deep pockets, they find it to be appalling,” Carr said.
“So the more that any journalism can state that, the more attention I think the general public will give this.”
Add your name: Georgia needs tort reform!
Georgia’s legal environment has deteriorated to the point that it threatens all the other good work policy makers have done over the decades. This can be fixed!