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Hurricane Harvey hit the shores of the United States in August this year, becoming the most powerful hurricane to have ravaged Texas in fifty years. It left over three hundred thousand miles destroyed in its wake, and cost the state…

Hurricane Harvey hit the shores of the United States in August this year, becoming the most powerful hurricane to have ravaged Texas in fifty years. It left over three hundred thousand miles destroyed in its wake, and cost the state an estimated USD $180 billion in damages. The cost of this Category 4 storm was on par with Hurricane Katrina in New Orleans, which cost $176 billion in damages, including $82 billion in insured losses, and significantly more than Hurricane Sandy in New York, which cost $75 billion, of which $31 billion was insured. Rising sea levels and warmer oceans continue to exacerbate natural disasters, making each one more destructive than the last, according to Climate Central. The series of wildfires in Northern California this year inundated property worth $65 billion over a hundred thousand acres, in less than nine days. Between 2000 and 2009, damages from wildfires have cost an average of $665 million per year in the United States.

Commercial real estate professionals are already trying to assess the impact that climate change could have on the industry over the next decade. Investors want to ascertain the resilience of their portfolio against flood damage, rising sea levels, and extreme weather conditions. The National Real Estate Advisors’ risk analysis tool can help evaluate if a portfolio’s value is at risk due to catastrophic weather conditions. The firm has invested in resilient properties that are insured and can cope with climate risk. Based on its risk analysis, the firm has also refrained from investing in South Florida entirely.

Commercial property management firm, CBRE, manages over nine hundred commercial properties in the Houston, Texas area. The firm reported that over one hundred thousand multi-family units were flooded under the onslaught of Hurricane Harvey. Moody’s estimated a loss of six to eight percent of industrial value – close to $2.6 billion, in the aftermath. As the area is rebuilt, new development requirements for flood control and water drainage are likely to be imposed. Coastal developers are setting precedents for the appropriate construction of building foundations, keeping in mind erosion, wave action and damage from flood debris. Developers further inland ought to plan ahead as well.

In coming years it is quite likely that sophisticated investors will exit investments which have not anticipated climate risks and have not minimized vulnerabilities to flooding and extreme weather. At the same time, developers who actively minimize these risks by following flood prevention building criteria and maintaining protective frameworks will begin to see greater interest for their properties from seasoned investors.

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Image source – Pixabay

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