Real estate professionals need to have climate change on their mind, according to Billy Grayson, Executive Director for the Urban Land Institute’s Center for Sustainability and Economic Performance. On Bloomberg Environment [1], Grayson discussed how rising sea levels and increased risk of damage from natural disasters.
The Urban Land Institute’s recent report, titled Climate Risk and Real Estate Investment Decision-Making, states that “if investors, owners, and developers don’t act to mitigate the risks that climate change poses to their portfolios, they could suffer significant losses.” The report notes that investors are reviewing their assets before it’s too late rather than waiting to see where the next disaster strikes.
“The report points out that insurance policies can cover some damages, but investors can’t rely solely on insurers for protection,” said Grayson. “Since insurers reprice annually, often using historical data to do so, premiums are not always an effective way to assess future risks.”
Investors are learning that they need to protect their assets through more than insurance. This means smarter construction as well as partnerships with local officials to implement climate-proofing strategies on a larger scale.
The Urban Land Institute offers several practices for investors, including analyzing climate risk in annual and quarterly reports, using big data to understand how weather changes will affect pricing and valuation, and working with insurers to learn how climate change will impact premiums and coverage. Additionally, investors should keep three important lessons in mind.
“First, it makes good business sense to plan for resiliency. A severe weather event will occur sooner rather than later,” said Grayson. “Second, frame the least vulnerable places as the most attractive spots for investment and development. Cities are already doing so with zoning policiesφ and financial incentives. Third, the private sector plays a vital role in future-proofing our cities. Elected officials can’t do it alone and public-private partnerships are critical.”
Find the complete report from the Urban Land Institute here. [2]