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

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In 2018, from May through July, much of the East Coast, down to Florida, saw rainfall up to three times normal levels, according to the National Oceanic and 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 it is most vulnerable.

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

The report highlights how real estate investment companies are now prioritizing the risk of climate change and creating new approaches to better gauge and develop mitigation strategies.

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

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

  • Mapping physical risk for current portfolios and potential acquisitions;
  • Incorporating climate risk into due diligence and other investment decision-making processes;
  • Incorporating additional physical adaptation and mitigation measures for assets at risk;
  • Exploring a variety of strategies to mitigate risk, including portfolio diversification and investing directly in the mitigation measures for specific assets; and
  • 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 and assets that will benefit from a changing climate,” according to the report. “While early adapters have committed resources to gain knowledge and improve awareness of climate risk, in the coming years, methods are likely to become more sophisticated.”

It also highlights the potential return on investment from 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 and is putting heavy resources, both financial and personnel, into measuring and balancing climate risk.



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