Climate change will crush real estate values for unprepared investors: Report

For any investor, measuring opportunity against risk is actually critical. in addition to for real estate investors in particular, risk is actually rising exponentially within the age of climate change.

To in which end, big real estate firms are pouring significant resources into calculating climate risk in addition to its likely effect on property portfolios — everything via increasingly extreme weather to a rise in sea levels.

“This particular process will be painful for investors who are caught off guard, however those who are prepared hold the potential to outperform,” a completely new report via the Urban Land Institute said.

Damage to U.S. real estate via extreme storms hit a record high in 2017. Natural disasters, including floods, mudslides in addition to wildfires, cost more than $300 billion in damage, the bulk of in which to residential in addition to commercial real estate.

In 2018, via May through July, much of the East Coast, down to Florida, saw rainfall up to three times normal levels, according to the National Oceanic in addition to Atmospheric Administration (NOAA). Nine of the top 10 years for one-day extreme precipitation events have occurred since 1990, according to the Environmental Protection Agency (EPA), because as the atmosphere warms, clouds hold more water.

All of these statistics are not just alarming, they are sounding the alarm bells for the real estate investment sector, because in which is actually most vulnerable.

“Understanding in addition to mitigating climate risk is actually a complex in addition to evolving challenge for real estate investors,” said ULI’s CEO, Edward Walter. “Risks such as sea level rise in addition to heat stress will increasingly highlight the vulnerability not only of individual assets in addition to locations, however of entire metropolitan areas.”

The report highlights how real estate investment companies are at This particular point prioritizing the risk of climate change in addition to creating completely new approaches to better gauge in addition to develop mitigation strategies.

“Building for resilience, on a portfolio, property in addition to citywide basis, is actually paramount to staying competitive. Factoring in climate risk is actually becoming the completely new normal for our industry,” added Walter.

Some of the strategies, according to the report, include:

  • Mapping physical risk for current portfolios in addition to potential acquisitions;
  • Incorporating climate risk into due diligence in addition to various other investment decision-producing processes;
  • Incorporating additional physical adaptation in addition to mitigation measures for assets at risk;
  • Exploring a variety of strategies to mitigate risk, including portfolio diversification in addition to investing directly within the mitigation measures for specific assets; in addition to
  • Engaging with policymakers on local resilience strategies.

“Investors see climate considerations as a necessary layer of fiduciary responsibility to their stakeholders, as well as an opportunity to identify markets in addition to assets in which will benefit via a changing climate,” according to the report. “While early adapters have committed resources to gain knowledge in addition to improve awareness of climate risk, within the coming years, methods are likely to become more sophisticated.”

in which also highlights the potential return on investment via putting resources into mitigation strategies for real estate assets.

Heitman, a Chicago-based real estate investment firm with nearly $34 billion in assets under management globally, worked with ULI on the report in addition to is actually putting heavy resources, both financial in addition to personnel, into measuring in addition to balancing climate risk.

“The industry didn’t seem to be pricing in these kinds of risks,” said Mary Ludgin, senior managing director in addition to head of global investment research at Heitman. “When we began the project of trying to identify the climate risk inherent in individual properties, we first looked to our insurers. They were less of a help than we were expecting.”

in which is actually because insurers reprice annually, in addition to therefore do not look at long-term designs. FEMA flood plains are reassessed about every several years, however they still don’t account for the increasingly extreme weather in addition to heavier rainfall in which parts of the United States are at This particular point seeing.

“We can’t try to determine what’s going to happen in 12 months beyond, because insurance is actually set up for what your risk is actually today. in addition to in which wouldn’t meet actuarial science to charge you for a future potential,” said David Maurstad, FEMA’s deputy associate administrator for federal insurance in addition to mitigation in addition to chief executive of the National Flood Insurance Program.