13 Oct Climate Risk & Real Estate: Where Are The Risks & The Opportunities?
Climate risk: the term was almost unknown until recently. But storm clouds are figuratively forming for real estate assets – particularly commercial assets – that are located in areas of the country where severe or frequent climatic events are taking place. Climate risk now figures prominently in everything from the planned rate hikes of giant insurance companies to lending policies of the US Federal Reserve right down to the mill rate debates of American municipal governments.
Climate Risk Should Not Be Mistaken For Climate Change.
Whatever you might think about this great debate of our generation, assessing the risk that something might happen is quite different from taking a political stand on the issue. At PCRP Group, our guide is analysis: Like it or not, major insurance companies, government regulators, the Federal Reserve and commercial lenders along with major investors like Blackrock, State Street and others have decided that climate risk is a real phenomenon and that the risks it poses to physical property will be very costly.
How Can Climate Risk Affect Real Estate Values?
In markets susceptible to such risk, regardless of whether a severe climate event ever materializes, it won’t just be insurance rates that rise. Local tax authorities already have started raising property taxes and issuing taxpayer backed municipal bonds to pay the costs of “hardening” local infrastructure or raising seawalls, building flood channels, modernizing power grids and raising other defenses against unpredictable weather.
Additionally, Fed Chairman Jerome Powell is exploring the idea of having a litmus test for banks – particularly commercial lenders – to see how “resilient” their portfolios are to climate risk. It is our prediction that once lenders start implementing climate risk analysis against properties, the values of certain properties will be compromised due to increased rate hikes, increased reserve requirements or worse yet complete lending restrictions.
Yet climate risk remains an overlooked factor for most investment groups, but not at PCRP. It’s in our name: Preferred Climate Resilient Properties. We rank risk management as highly as returns and tax strategy when we “do the numbers” on any prospective acquisition.
Many multifamily investors find they can choose to spread even relatively small portfolios over multiple geographic markets, lessening the risk of regional setbacks. Combined with PCRP’s strategy of avoiding markets subject to earthquake, flooding, droughts, excessive and frequent heat waves and hurricanes, we believe our portfolio of professionally managed properties provides a best-in-class approach to managing the risks of a setback due to regional economic, climatic and natural disasters.
Multifamily Investments Can Reduce Carbon Footprint & Increase Returns
Generally, multifamily housing property developments are much more efficient than single-family construction, making efficient use of resources like land, water and energy, and generating a much lower carbon footprint and waste per resident.
What’s more, modern construction and renovation strategies can produce net gains in environmental health and, by concentrating population, offer opportunities to produce green infrastructure like public transit, parks and pedestrian-friendly commercial zones.
Municipal, state and the federal government all offer significant tax advantages to multifamily projects who take steps to improve energy efficiency and other environmental metrics. In slightly older buildings, including those PCRP Group seeks to acquire, deferred maintenance and obsolete construction methods offer ripe opportunities to “green” while we add value to the property.
Electrical, landscaping, heating and water systems along with other conservation approaches that have the environment in mind can be utilized in the retrofitting of buildings but need not be more expensive than traditional renovations. In fact, these measures can not only reduce overall operating costs but can lead to tax breaks that can significantly improve margins even as they enhance the residential life of the apartment community that we serve.
A greener building is a happier building, and happy tenants renew at higher rates. It’s also a healthier building. Studies show decreased incidences of childhood diseases, depression and mental illness when tenants live in environmentally sustainable environments.
Combined with PCRP’s strategy of avoiding areas where climate and other natural disaster risks loom, these factors promote long-term tenancy and position projects to take advantage of the wave of tax incentivized financial rewards which has only just begun.
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!