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Global Real Estate Practice Leader
Marsh
Boston

PRIZM product allows middle-market clients to pass on seeking coverage from multiple carriers for different lines.

With the downturn in the economy, there has not been much going on in the commercial real estate markets from a transactional standpoint. But that does not mean that forward thinking real estate and construction risk managers should not have stayed busy helping their clients and their companies cut costs and reposition themselves for the coming upswing.

That's exactly what Jeff Alpaugh, the Boston-based global real estate practice leader for Marsh has been up to. According to co-workers and clients, Alpaugh has been instrumental in designing and selling a suite of products aimed at cutting costs for commercial real estate clients and positioning them for more efficient growth when things turn around.

In coming up with the new suite, Alpaugh has leveraged a natural passion for the game with a genuine interest in clients' issues and concerns. One of the new products he championed, PRIZM, is aimed at commercial real estate businesses with revenues under $2 billion that might not have the resources or the weight to negotiate economical lines of business from carriers.

"A lot of the middle market buyers in the U.S. sometimes can't get the bells and whistles that a larger firm can get," Alpaugh explains.

PRIZM, which stands for Portfolio Real Estate Innovations Zurich/Marsh is, as its name suggests, a Zurich-Marsh collaboration. It provides one-stop shopping for middle market clients, allowing them to apply for a range of coverages without having to fill out a separate application for each one.

Rather than go with multiple carriers for different lines, the coverage gives buyers the financial stability of Zurich (Standard & Poors AA-minus) and skips the drama that can occur when multiple carriers are pulled into a claim. "Sometimes if you have two different insurance carriers insuring the risk, they both point the fingers at each other," Alpaugh said.

PRIZM includes green endorsements for clients building or renovating LEED-certified properties and provides separate towers for earthquake, catastrophic windstorm and flood coverage and another tower for casualty.

Jim Romano, a knowledge manager at Marsh, said that although many professionals recognized that commercial real estate clients needed help and needed it fast, it was Alpaugh who got things going on the Zurich collaboration.

"He really spearheaded the whole thing," Romano said. "He saw the need that a lot of the midsize and midmarket real estate companies had to consolidate and reduce costs and he went to Zurich with the need and was able to pound out the program," Romano said.

Alpaugh was also instrumental in developing a product called Involuntary Unemployment Insurance (IUI) for tenants, which helps owners of apartment buildings and multifamily properties protect lease revenue streams against exposures from job losses. Add to that a Lease Receivables Protection product which helps to protect a policy holder from tenant bankruptcy exposures.

But that's not all folks. Alpaugh, working with Marsh subsidiary CS STARS, developed RealSTAR, a technology tool that helps clients track their assets and their asset exposures.

The program lets managers see at a glance the particulars of their policy on each site, its transaction history and its physical location, (using a link to Google Earth). "So there are a lot of different customer reporting features that they can tap into," Romano said.

Romano said Alpaugh cares about his professional area of interest, but he also travels constantly, interviewing clients or prospective clients, thinking about how the changing economy is affecting them and trying to come up with solutions.

"For the amount of time that he is on the road and working on issues and working on new products like we've described, I don't know how he does it," Romano said. "I couldn't keep up with that pace."

"I think he is a very good listener and so if there is a need for a solution out there he is really good at coming back and being able to design that solution," said Claire Skinner, director, insurance risk manager with the Boston-based AEW Capital Management.

"He knows the industry so well that when you bring up an issue he knows five other companies potentially that are dealing with that issue. He is very circumspect, he would never acknowledge who they are," Skinner said.

--By Dan Reynolds

Senior Vice President
ACE USA/ACE Environmental Risk
New York

ACE's Bill Hazelton gives his team enough green space with which to innovate.

Under the leadership of its New York-based Senior Vice President Bill Hazelton, ACE USA/ACE Environmental has taken a broad-based approach to addressing the exposures created by the emphasis on green building in the commercial construction industry.

What is referred to as ACE's Green Contractors Pollution Liability insurance solution was rolled out in April and it involves the sale of environmental insurance, yes, but it is also meant as an effort to educate and lend technical support to green-minded contractors to reduce their environmental exposures.

"I want to stress, No. 1, it's a program, it's not insurance," said Gerry Rojewski, a vice president, corporate risk, with ACE Casualty Risk who worked with Hazelton in creating the contractors' pollution liability product.

Builders are abuzz these days with LEED, or Leadership in Energy and Environmental Design certification, either for their buildings or their employees.

The problem, according to Hazelton and Rojewski, is that few really understand what it means or have a grasp of the exposures it creates. Part of the innovation in the ACE program is that ACE Environmental is partnering with Hygienetics, a risk management consulting subsidiary of ACE's Philadelphia-based TPA ESIS Inc.

Engineers with Hygienetics are able not only to provide training to companies that wish to expand the number of their employees that are LEED-certified, but can also assess the green building exposures either of a new construction project or a renovation.

"There is definitely pressure whether it is renovation or new construction to build to a green building standard," Hazelton said.

Adding to that pressure is the fact that there is a serious lull in commercial construction right now. Hazelton said that many of his clients are working off their backlogs in 2009, but as for how busy commercial builders will be in 2010, he issued the uncertain assessment: "time will tell."

Now along comes the federal government and its $787 billion economic stimulus package, also known as the American Recovery and Reinvestment Act, which is dishing out $140 billion in public sector construction projects.

As a condition of its largesse, the government is requesting that the projects it funds be at least partially built using green building elements, either recyclable or renewable source materials, or built in such a way as to reduce water and energy consumption.

For now, Hazleton said builders in the private sector that are in the business of building mixed use residential and retail have been the ones most likely to take up ACE's program.

"That is where we have seen more of a play with the green construction products," Hazelton said. But he also sees a day when alternative energy projects such as wind farms and ethanol plants will be interested. Public funding is so constricted that Hazelton said he hasn't seen much if a public hunger for the new program, not yet anyway.

As the private sector shifts and reinvents itself to stay alive, contractors are moving into places they have never been before. Hazelton is seeing large players delve into projects normally reserved for the middle market and the middle market dipping into places where the smaller market traditionally dwelt and so on.

"I think from a revenue standpoint they are looking at projects to diversify themselves and to look at areas they might not have looked at before," Hazelton said.

Rojewski said Hazelton travels 40 weeks out of the year, is deeply dug into the industry and had plenty of ideas to give the team that created this project all it needed to succeed. "I think he is the one that set the stage for us and then he let us rock and roll with it," Rojewski said.

--By Dan Reynolds

Director of Risk Management
Western & Southern Financial Group
Cincinnati, Ohio

Risk manager doubles builder's risk coverage limit at a 35 percent discount.

It's one thing to make a key play in a backyard game of Wiffle ball or Frisbee, with only the family dog watching. But what about pulling off a great play when your company, indeed an entire city, is watching?

That's the situation in which John Musgrove, a director of risk management with Western & Southern Financial Group, found himself when his company embarked on the construction of a 41-story office tower at the corners of East Third and Sycamore streets near Cincinnati's riverfront.

The construction of big buildings like that might be common in Dubai, Shanghai or even Mumbai, but it's not an everyday occurrence in the Queen City, or the Midwest, for that matter.

"Maybe for New York City this is not an out-of-the-ordinary risk but for what we do here in risk management at Western & Southern and for the city of Cincinnati this is an extraordinary project, just the scale and scope of it," Musgrove said.

When completed in the spring of 2011, the 41-story office tower, which has as its crowning feature a 40-ton steel replica of Princess Diana of Wales' tiara, will be Cincinnati's tallest building. For a building that big with that much visibility and with a price tag of more than $400 million, Musgrove needed to produce coverage to match.

"I guess that was the main challenge--that we were getting as broad a coverage as we needed and at a fair price also," Musgrove added.

In working with Turner Construction, one of the nation's largest contractors, most risk managers might have been content with using Turner's builder's risk policy, which offered limits of $100 million for what will be known as the Great American Tower at Queen City Square. Musgrove and his band of colleagues at Western & Southern weren't exactly satisfied with that.

For one, they had an anchor tenant, the Great American Insurance Group, which in addition to agreeing to rent 530,000 square feet of office space in the new tower, just happened--coincidentally or not--to offer a specialty in builder's risk insurance. Musgrove and his colleagues thought they might be better served by having not $100 million in builder's risk limits, but $200 million.

After all, the $400-million project is across from the Great American Ballpark, the diamond where the Cincinnati Reds ply their craft and where thousands of tourists and others would be walking around in summertime, easy targets for a wayward construction crane, should it get any nasty ideas and decide to plummet to earth: You get the picture.

So does Jim Vance, Western & Southern's vice president and treasurer. Western & Southern had worked under Turner's builder's risk policy for an earlier 200,000-square-foot building on the site, but this second piece was an entirely different matter.

"The second project was going to be substantially larger, much bigger with cranes and we are basically right across the street from Great American Ballpark, a high traffic area," Vance said.

So, with the help of Western & Southern's real estate staff, and his brokers at Aon Corp., Musgrove got to work and leveraged the relationship with Great American to have that company provide the builder's risk policy, thereby doubling the coverage at a 35 percent discount.

Not only that, but he was also able to arrange products and completed operations coverage for the project for the full term required under state statute, 10 years, as opposed to the three years the Turner policy provided. All in all, pretty much a home run.

So, how does Musgrove do what he does?

"John is extremely patient and speaks from authority and is very fact-based," Vance said. "He doesn't really go by opinion or politics, he goes by, 'OK, what's best for the company?' "

Musgrove's communication skills really came into play here. Turner was a cooperative partner, according to Musgrove and Vance, but Musgrove needed to convince the massive contractor and his own board's insurance committee of the need for the expanded coverage and why the coverage that worked on phase one wasn't such a good fit for phase two.

"It was a very interesting project and I will tell you that there was much that I learned about construction risk management and what's involved with a building of this size and magnitude and this scale. I think throughout a learning experience like this I was able to tap into all of the resources that were available," Musgrove said.

Most of all, perhaps, including his own.

--By Dan Reynolds

President
Paul Davis Restoration of Central Nebraska
Grand Island, Neb.

A Nebraska insurance restoration company goes to great lengths to restore a rural landmark.

It's more than four miles from Junior Bartels' cattle and grain farm to the Zion Lutheran church which dots the countryside a few miles outside of the little town of Tobias, Neb. And over the decades, even when the corn was at its highest, Bartels could always see the white cross that topped the steeple of the church where he has been a congregant for more than 80 years.

That was until last July, when a windstorm blew the church's steeple and bell tower to the ground, destroying them. The church elders carried more than adequate insurance.

But what do you do when what you are trying to replace is more than 100 years old, you have no blueprints and you're working with a structural foundation that is paltry by today's standards? Enter Nick Suminski, president of the Paul Davis Restoration Co. of Central Nebraska. Suminski and a team of architects and engineers have come together to painstakingly research and find a way, innovate, if you will, to rebuild the steeple tower and get that cross up to where Junior Bartels can see it again.

"It is, well I guess you could call it a landmark," Bartels said. And Bartels and many others agreed that they wanted to see the church restored completely. He said he's seen what happens when other churches in his region lose their steeples and don't replace them.

"We know of another church where they didn't replace the steeple. And it spoiled the looks of the church," Bartels said.

To reconstruct the steeple and bell tower, Suminski and his crew hauled the broken architecture more than 90 miles to their shop in Grand Island. There, using the broken pieces as a pattern, the company is reconstructing the tower and steeple in two separate pieces.

The last time the steeple was erected, back in 1907, horses and pulleys were used to lift it into place. This time, the builders have fastened cables to the church's interior and will use those to lift the steeple back into place, an event now scheduled for mid-September of 2009.

Rebuilding the steeple to exactly the way Junior Bartels remembers it is one thing, but the foundation of the old church isn't much.

"Only one course of block approximately eight inches by eight inches by 16 inches was used as a foundation on this project," said Randy Dye, an associate with Paul Davis Restoration. What's worse, the drainage under the old church was poor. There was no solid ground under the foundation to a depth of six to eight feet when it was probed, Dye relates.

Dye said part of the restoration will now involve the pouring of a three-foot thick concrete foundation over crushed rock. With that in place, there should be a solid enough base for Suminski's team to erect the tower.

Some people win awards for sky scrapers that jump tens of stories into the sky in the middle of cities with populations in the millions. But Suminksi is pulling down this award for a church the closest town to which is Tobias, with a population of about 150.

"It's not every day that you get to work on a 100-year-old church out in the middle of Nebraska," Suminski said. "The biggest challenges in pulling this off were trying to understand how this thing was built 100 years ago, " Suminski said.

"Just trying to figure out how they did it. Why they did what they did and how can we bring it back and make sure that it doesn't happen again."

For his part, Bartels, who articulates like a born story teller, can relate that the deer moved in on his sweet corn pretty aggressively this past summer and that a beaver, or a group of them, decided to interrupt his phone service as well.

He also confides that his own sons painted that cross once and he wouldn't mind seeing it punctuate the horizon again.

"If I live long enough," he adds, chuckling.

--By Dan Reynolds