An historically designated five-story building in downtown Tacoma came on the market; the perfect location for a commercial real estate investment. The old Tacoma YMCA was partially leased to an athletic club for the back half and the front half had substantial office development potential, with the added benefit of onsite parking. It was an ideal location for a Tacoma commercial real estate development. We formed a partnership to buy the structure, finished a model office and went to the market to lease out the balance of the building when a four alarm fire struck in the middle of the night. The devastation to the interior was so substantial that the building was in danger of condemnation.
At the time of formation, we represented the partnership in the management, formation, and obtained appropriate insurance coverage. We took care to make sure that the coverage in the event of fire was based upon our estimate of the full replacement cost of the structure, and that the base liability coverage had an additional policy to cover several extra millions of dollars. The insurance company immediately pulled a replacement cost appraisal on the property to ascertain whether or not the partners could be held liable for part of the damages. Our care at the time of insuring the property enabled the partners to make the insurer totally liable for damages. The tenant initiated a suit which dragged on for almost four years for damages. Again, because of the care taken to protect the partners on the front end of the formation, no liability or costs were attributed to the investors.
The lessons of this event are used today to counsel and protect our clients from the risks and costs of catastrophic occurrences in their commercial real estate investments.