Converting an existing office building into residential units is becoming more common across Canada, and it creates a fundamentally different insurance challenge than a ground-up construction project, according to Derek Reedie (pictured), head of engineering and construction at HDI Global Canada, since the entire basis of how a policy is priced starts from a completely different assumption.
In an interview with Insurance Business, Reedie said standard course-of-construction insurance is built around a simple premise: a project starts with nothing and its insured value grows as construction progresses. A conversion breaks that premise immediately, since the building already has an existing structure whose worth has to be established before anything new is even built.
"From a course of construction perspective, we are used to starting off with nothing," Reedie said. "As soon as you have a renovation project, you always have the question of, well, what is that existing structure worth and how do you insure it? That's the largest question for the insurance piece."
That valuation problem is compounded when a property has sat unused and was purchased at a discount that has little relationship to its actual replacement cost, Reedie said, since a low purchase price can create a misleading starting point for coverage rather than a reliable benchmark.
"If it's a vacant asset and you were able to buy it at a favourable price that doesn't reflect its true replacement cost, how should it be insured? On what basis do you want to insure that?" Reedie said. "Even then, if you have a building where you're going to strip everything off of it, how do you value that?"
Getting that valuation right, Reedie said, means underwriters pushing for as much documentation as possible before terms are finalized, rather than relying on assumptions or treating the purchase price as a stand-in for actual value. He pointed to surveys, condition reports, and in-house risk engineering as the kind of groundwork that lets an underwriter arrive at a fair price for what the existing structure is genuinely worth.
That groundwork matters, Reedie said, because an unresolved valuation gap tends to surface at the worst possible moment, after a loss has already occurred, when there's far less room to negotiate a shared understanding of what the asset was actually worth.
Reedie said the trend toward office-to-residential conversions isn't new, but it has become more visible in recent years as vacancy in older office stock has pushed owners toward adaptive reuse rather than demolition or long-term vacancy. He said the shift reflects a broader repositioning of aging commercial real estate that shows no sign of slowing, and pointed to his own recent observations in Calgary as one example of how widespread it has become.
"When I was in Calgary in July, I noticed there was quite a lot of office retrofits going on," Reedie said.
He also pointed to the partial collapse at a building in New York, widely reported as involving the Pfizer headquarters, as a stark illustration of what can go wrong when an existing structure is pushed beyond what it can safely support during a conversion or major renovation project. Reedie was careful not to speculate on the specifics of that particular case, saying only that the broader pattern it represents is instructive for the industry.
"Without getting into the specifics of the project, there's an example where you've got a building right in the heart of New York that is at risk of collapse," Reedie said. "That's a very challenging thing to have to deal with for the contractor, for the insurer, for the city. All parties involved are going to have to struggle with that."
That kind of outcome underscores exactly why the valuation and condition-assessment work needs to happen upfront rather than being treated as a formality, Reedie said, since the consequences of getting it wrong extend well beyond a single insurance claim to public safety and municipal liability as well.
"Nobody wants to start off a claim where you've got this massive disparity in what the insured is expecting versus what the actual asset is worth," Reedie said.
