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Climate Change Assessment:
How does climate change currently impact real estate investment decision-making? What are the emerging best practices for investment managers, institutional investors and others to identify and mitigate new and unprecedented risks?
Many assets held by real estate investors are in cities vulnerable to the effects of climate change – ranging from more intense and frequent weather events such as hurricanes, typhoons, and wildfires to more gradual changes such as sea-level rise or shifting weather patterns.
For real estate owners and developers, being underwater has long been metaphoric shorthand for stressful times, when property debt exceeds property value, or expenses exceed income. But the term now has new meaning: Real estate property could actually be underwater because of future climate change.
But you don’t need to be a scientist to understand that economic and physical climate change effects could adversely affect real estate. Risks exist at all geographic scales and places: along seacoasts; within watersheds; on hillsides; and in vulnerable urban, suburban and exurban areas. Individual buildings likewise are at risk, depending on their location and construction.
Less obvious are transition risks over time not attributable to single catastrophic events. Progressive climate change could depress real estate market growth and viability, as well as property values. Public policies and regulations aimed at mitigating climate change effects could increase investment and ownership expenses, including taxes, insurance, code compliance, infrastructure and financing. Essential resources, such as energy and water, could become increasingly scarce and ever more costly.
The real estate decision-making bottom-line is clear. To stay afloat, we must act together and make public-private commitments, regionally and unselfishly, to implement and pay for climate change risk mitigation. Otherwise all of us will end up underwater physically and financially.